If you own a property with someone else, filing for bankruptcy could impact your co-owners. However, the exact impact would depend on who your co-owners are, the state laws, whether you’re filing for a Chapter 13 of Chapter 7, and if the joint property is exempt or not.
In general, a majority of your assets might become a part of the bankruptcy estate once you file for bankruptcy. With a Chapter 13, the value of your non-exempt property would be paid to all your unsecured creditors as part of your repayment plan. With a Chapter 7, the trustee of the bankruptcy estate would sell all non-exempt assets to repay your creditors.
Bankruptcy and Joint Property in Utah
Whether a joint property you own would be claimed by the bankruptcy estate depend on who your co-owner is and where you live. In Utah, which is a common law property state, every co-owner’s individual interest would normally be considered as separate property. This means that only the estate would only take your share of the joint property, explains Utah Bankruptcy Pros and other bankruptcy attorneys in Provo.
However, take note that a trustee of a Chapter 7 bankruptcy might sell the joint property if your share isn’t exempt. In case the trustee couldn’t sell your portion because the property couldn’t be divided, the trustee should prove that it’s more beneficial for the co-owners to sell the property in its entirety. Once the court approves the sale, the trustee should then pay off the joint owners their share of the sale proceeds.
A note on bankruptcy exemptions, though. These could safeguard some of your property in Chapter 7 and lower the debt you have to repay unsecured creditors in Chapter 13. If you could exempt a property, you could keep it. This means that if you have a joint property that’s fully exempt and without equity, bankruptcy won’t affect it.
Other Crucial Things to Note
In some states, married couples could make certain that their property is a marital entity in “tenancy by the entirety”. This means that if only one of both spouses files for bankruptcy, the “tenancy by the entirety” property might be exempted. Take note that if you jointly file for bankruptcy, however, this won’t be exempted.
Filing for bankruptcy may seem complicated, especially if you’re sharing properties with another person, but it can go smoothly if you have a legal professional to help you.