What to Do If Real Property Status Changes Over the Course of Filing For Bankruptcy
Learn how to complete Schedule A -- and what to do if your ownership of real property changes during your bankruptcy case.
ALERT: As part of a multi-year court project to modernize the Official Bankruptcy Forms and make them more consumer-friendly, the Advisory Committee on Bankruptcy Rules has recently revised most of the consumer bankruptcy forms (several had already been revised in 2013 and 2014). The changes became effective on December 1, 2015. The revisions involved reformatting, renaming, and renumbering the forms, and in a few instances, combining two forms into one. You can find the new forms here: www.uscourts.gov/forms/bankruptcy-forms. We are in the process of revising all of our articles to comport with the new forms. Check back soon.
When you file for bankruptcy under Chapter 7 or Chapter 13, any real property you own must be listed on Schedule A, one of the many forms you must file with the court. Real property is real estate: a house or apartment, rental property, business property, vacation home, farm, or an undeveloped lot, for example. (You list your personal property -- such as a car, furniture, computer, and clothing -- on Schedule B.)
If you file for Chapter 7 bankruptcy, your real property may be exempt, which means that the trustee can't take it and sell it to repay your creditors. (Whether it's exempt depends on which exemptions you can use in your case; for information on exemptions and links to each state's exemption list, see Bankruptcy Exemptions - What Do I Keep When I File for Bankruptcy?) Even if it's exempt, however, you must list it on Schedule A. You claim your exemptions on a different form (Schedule C).
Completing Schedule A
When you fill out Schedule A, you will need to provide a description and address of the property, information on how you own it (and with whom), its current value, and the amount of any claims secured by the property.
There are many ways to own property. The most common is outright ownership, called a "fee simple." Even if there's a mortgage or lien on the property, you still own it in fee simple. There are a number of other ways to own property, and all must be listed on Schedule A. They include:
- Life estate: This gives you the right to possess and live on the property during your lifetime, but you on't have the right to sell the property or leave it to someone when you die. Instead, ownership will pass to the person named in the document that created your life estate. This type of ownership might be used in a second marriage, to allow the surviving spouse to continue living in the family home while ensuring that it will eventually pass to the children.
- Future Interest: A future interest gives you future rights to the property such as when you are named in an irrevocable trust as the person who will inherit the property when the current possessor dies. Just being named in someone's will doesn't give you a future interest, because the person could always change the will.
- Easement: An easement is the right to travel on or use property owned by someone else. For example, you may have an easement to use a path or drive that's actually part of your neighbor's property.
These are the terms you should use in the column "Nature of Debtor's Interest in Property."
In the next column, you must state whether you own the property solely as an unmarried person, solely as husband or wife, jointly with someone else, or as community property with your spouse.
You must provide the property's current value and the amount of any secured claims against it. Secured claims might include your mortgage, a home equity loan, or liens against your property.
Changes in Real Property Status
If there are changes in the information you provided on Schedule A, you must inform the trustee and file an amended Schedule. There are two main reasons why this might happen. First, you might have made a mistake in the first place (for example, perhaps you forgot or didn't realize that there was a mechanic's lien filed against your house). Second, circumstances may have changed your ownership. For example, perhaps your future interest in property has become a fee simple interest, because the person living on the property has died.
In either situation, you should immediately tell the trustee about the change, then file an amended Schedule A that provides the new information. (You'll need to serve the amended form on all creditors that may be affected by the change.) You should also file an amended Schedule C if the change affects your right to claim an exemption on the property. For example, that mechanic's lien you forgot about may reduce your equity in your home to an amount that you can exempt in your state. If so, you should amend your Schedule C as well. For information on amending your bankruptcy forms, see How to Amend Your Bankruptcy Forms.