What Happens in Bankruptcy If I Am on the Deed to Someone Else's Home?

Filing for bankruptcy when you have someone else’s property in your possession—either physically or on paper—can get dicey fast. Learn how to avoid costly mistakes.

By , Attorney

Yes, you can file for bankruptcy if you own a home. You can even file if you co-own a house or hold the home in trust for someone else. But in each scenario, you'll run a higher risk of losing the property in bankruptcy if you don't live in the house.

Learn more about the things that can impact your ability to keep a house in Chapter 7 or 13 bankruptcy, including:

  • your status as a homeowner, co-owner, or trustee
  • the home's equity and mortgage, and
  • transfer attempts before bankruptcy.

Here's the good news. If you live in the home, you can skip the first section altogether. However, if you suspect your home won't be safe in bankruptcy after learning more about this topic, speak with a bankruptcy lawyer—it might not be the right time for bankruptcy.

Are You at Risk of Losing Someone's Home in Bankruptcy?

The last thing anyone wants to do is accidentally lose a house in bankruptcy, especially if it's someone else's home. You'll want to be cautious if you:

  • lease a rental property to a tenant
  • own a vacation property you stay at occasionally
  • hold property in trust for a "beneficiary" or on behalf of the actual owner, or
  • co-own a property with the resident—perhaps your ex-spouse—but don't live there yourself.

Because primary residences get far more protection than other real estate types in bankruptcy, protecting homes in these situations is often more difficult. Keep reading to learn more about why living in the home is a critical detail.

How to Keep a Home in Chapter 7 or Chapter 13 Bankruptcy

You won't lose your house in Chapter 7 or 13 if you meet property exemption requirements. Find out where you stand by answering these questions.

1. Do you own the property?

If you can prove that you're holding the home in trust for someone else, you won't declare it as property you own. Instead, you'll include it in the "holding property for someone else" section of the bankruptcy paperwork, along with other assets in your possession you don't own, such as a borrowed car or lawnmower.

You can skip the rest of the analysis unless you're concerned that the bankruptcy trustee won't believe it's not your property. In that case, you might want to declare it as yours or avoid bankruptcy altogether.

2. Can you protect your home's equity?

Your state's bankruptcy exemption laws list the amount of home equity you can keep. A homestead exemption protects property equity explicitly, but only if the filer lives in the house. This rule can create a problem for people who don't live in the home because a homestead exemption will protect far more equity than the other option, a wildcard exemption. Also, some states don't extend the wildcard exemption to real estate, and others don't have a wildcard exemption at all.

You'll find your state exemptions here. If you live in a state that allows you to choose the federal bankruptcy exemptions, pick the system that will cover the most assets overall.

If a bankruptcy exemption covers the home's equity, you can keep the house in Chapter 7 (assuming you meet other requirements). In Chapter 13, you won't lose the property if you pay for noncovered or "nonexempt" equity in a Chapter 13 payment plan.

3. Is the mortgage current?

In Chapter 7, your mortgage must be current when you file. Otherwise, the lender will use its lien rights to foreclose on your home once the court lifts the automatic stay that stops collection actions.

If you're behind, consider filing for Chapter 13 and spreading the arrearages over the three- or five-year Chapter 13 plan. You might even be able to reduce the principal balance owed through a Chapter 13 cramdown or lien strip.

4. Do you reside in the home?

Although we covered this already, it's worth repeating. In almost every state, you can use the homestead exemption only if the home is your residence. If you don't reside in the house, you won't be able to protect much equity, if any. You could lose the house in Chapter 7 or have to pay for the equity in a Chapter 13 plan.

If the property equity is nonexempt or partially exempt, here's what will happen:

  • In Chapter 7, the Chapter 7 trustee will sell the property and pay you the exemption amount. If a co-owner is involved, the co-owner receives the appropriate equity share. The remaining sales proceeds get distributed to creditors after the trustee deducts sales costs and the trustee's fee. If you and your spouse hold the title as tenancy by the entireties and only one of you files for bankruptcy, the trustee might not be able to sell the home. Check with a local bankruptcy lawyer.
  • If you want to keep the property in Chapter 13, you'll pay an amount equal to the nonexempt equity through the Chapter 13 payment plan.

Don't Transfer Property Before Bankruptcy

When you're dealing with an unusual property issue in bankruptcy, like having an ownership interest in someone else's home, the stakes can be high. But trying to avoid the problem by transferring the house out of your name or conveniently forgetting to list it aren't viable options. You don't want to find yourself involved in an unexpected investigation (the FBI investigates bankruptcy fraud).

Instead, avoid problems by doing two things:

  • Ask your bankruptcy lawyer what will happen in your case before filing—most bankruptcy attorneys can predict outcomes with a reasonable degree of accuracy.
  • If you and your bankruptcy lawyer decide to file, be transparent with all financial and property disclosures.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

Schedule A/B: Property

Schedule C: The Property You Claim as Exempt

Schedule D: Creditors Who Have Claims Secured by Property

Statement of Intention for Individuals Filing Under Chapter 7

Related Information

How Much Debt Do You Have to Have to File Bankruptcy?

Can You File for Bankruptcy If Your House Is in Foreclosure?

Chapter 13 Bankruptcy: What If I Have a Lot of Equity in My Home?

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like The New Bankruptcy by Attorney Cara O'Neill.

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

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