So, taking worst case scenario, she would be given the opportunity to pay the trustee the amount of her equity that was disallowed if any ... BEFORE the house was in danger of being sold?
Response 1: Yes.
Wouldn't I have to be notified if the house was in danger of being sold?
Response 2: You should be. Otherwise, you can get your own bankruptcy attorney to challenge the trustee's attempt to sell the property without notice to you. Also, if there is a mortgage on the property, the lender must be notified of the sale.
How could they sell a house out from under me when I have nothing to do with the proceedings?
Response 3: Unfortunately because the person who filed for bankruptcy protection is part owner of the property. The 50% of the property is now considered bankruptcy estate. However, as I stated previously, I am not certain that trustee would prevail here. Ohio Revised Code 2329.66(A)(1a)(b) is clear as to the homestead exemption. The exact amount has been increased to $21,625.00. Your sister is entitled to claim that property as her homestead:
"(A) Every person who is domiciled in this state may hold property exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order, as follows:
(1)(a) In the case of a judgment or order regarding money owed for health care services rendered or health care supplies provided to the person or a dependent of the person, one parcel or item of real or personal property that the person or a dependent of the person uses as a residence. Division (A)(1)(a) of this section does not preclude, affect, or invalidate the creation under this chapter of a judgment lien upon the exempted property but only delays the enforcement of the lien until the property is sold or otherwise transferred by the owner or in accordance with other applicable laws to a person or entity other than the surviving spouse or surviving minor children of the judgment debtor. Every person who is domiciled in this state may hold exempt from a judgment lien created pursuant to division (A)(1)(a) of this section the person's interest, not to exceed twenty thousand two hundred dollars, in the exempted property.
(b) In the case of all other judgments and orders, the person's interest, not to exceed twenty thousand two hundred dollars, in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence." (emphasis added by me)