Dear Bankruptcy Adviser,
My mother left my sister and me her house. The house is paid in full, and the taxes are current. My sister lives there for free. My mother signed the house to us to be sold and split equally. We both have attorneys. She will not give me my half and says she can’t afford it. If I file for bankruptcy, what happens to the house?
I do not have all the facts, so this answer is going to be very general. For the purposes of this question, I will also assume you plan to file Chapter 7 bankruptcy. Chapter 7 bankruptcy provides filers with protection from your creditors and relief from many of your debts. You file this type of bankruptcy when you do not intend to pay back your creditors and are seeking a “fresh start.”
Based on the information you are giving me, I believe bankruptcy is not an option. It appears you would lose too much. Ideally, you and your sister can resolve this matter outside of bankruptcy, because inside bankruptcy, you could lose some or your entire share in the property.
I will explain. When you file bankruptcy, the court assigns a person to your case, called a trustee. The trustee is in charge of monitoring and administrating any assets of your estate. In layman’s terms, the trustee steps into your shoes and does with your assets what you are legally allowed to do. That does not mean the trustee sells everything you own. In many bankruptcy cases, the bankruptcy filer (you) is able to protect some or all assets from the trustee’s control.
In your case, you are legally entitled to a percentage of the equity in this house. But you probably would not be able to protect that share from the trustee. States have homestead exemptions that let you protect certain amounts of equity in your home; these exemptions generally don’t apply to properties that you don’t reside in. In some states, you can use a “wild card” exemption to protect other real estate that you own, but this exemption is typically much smaller than the homestead exemption. And some state wild cards can be used for personal property only.
If you filed Chapter 7 bankruptcy, the trustee could force the sale of the property — with or without your sister’s consent. This is done through a partition action within the bankruptcy process. A partition action is such that the trustee forces the other property owners to sell the property in order to secure your share. The other property owners can pay the trustee directly to buy out your share and protect their interest. Or allow the trustee to sell the property and give the other owners their interest.
Either way, the trustee would then take the money from the buyout or sale, take a big chunk for his or her fee, give the sister her share of the sale proceeds, pay you the minimal exemption, if any, that you are entitled to, and use the balance to pay down your debts. If there is anything left after paying your debts, your sister and the trustee fees, it would go to you.
I am going to assume you do not want that result. Tread carefully and make sure you are receiving thorough advice prior to filing bankruptcy.
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