Bankruptcy Law Questions? Ask a Bankruptcy Lawyer Now.
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Question: We own 1/2 of a property with my brother-in-law. He is going to file bankruptcy. Corporate and personal. My in-laws live in the house and pay rent to help with the monthly payment. We pay 1/2 the monthly payment along with my brother-in-law. There is a LOT of equity in the property. More than 50% of value. How do we protect the house, protect us, and not negatively affect my 89 year young in-laws who live in the house. To make sure they can stay in the property. We have a joint account with the brother-in-law where we put the money to pay the mortgage. One BK attorney told my sister-in-law that if we bought them out the court might look at that as fraudulent event even though it might be the right thing to do. How do we protect our half of the equity. We don't want to be forced into a sale. We can afford to buy them out and afford the payments.
Response: Continue to make the mortgage payments on the house so that the lender would not have any reason to foreclose on the property. The only interest your brother-in-law must claim for the house on his bankruptcy schedule will be 50% interest of the equity on the property. Unfortunately, if he is unable to completely exempt his interest on his bankruptcy schedule, the bankruptcy trustee would look for him to pay the difference. If he is not able to pay it, then the trustee would force the house to be sold. This is the worst case scenario. The alternative: if he is not able to come up with the difference, you can pay the trustee the difference to prevent the forced sale and keep your in-laws in the house.
Finally, the bankruptcy attorney is correct. Any attempt to buyout your bother-in-law at this time would be considered a fraudulent transfer and the transfer would be voided by the bankruptcy trustee. Pursuant to 11 U.S.C. Section 548 subsections (a) and (e) a bankruptcy trustee can void fraudulent transfers made within 2 years prior to bankruptcy filing and in some instances within 10 years prior to bankruptcy filing if transfer was made to a trust.