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Ask Terry L. Your Own Question
Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2832
Experience:  Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.
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Hello, I own a piece of open land in Arizona with a partner.

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Hello, I own a piece of open land in Arizona with a partner. Unbeknownst to me, on February 8 2013 he filed bankruptcy chapter 7. The land has a small mortgage (less than $5000) that was held over in a settlement agreement with M&I bank. They settled $171K for a total of $25000. The $5000 remaining is so we can control when the 1099 goes out. What happens to my end of the land? Can the bankruptcy court forcibly take it from me?

Terry L. :

Hi, thanks for your question. You should hire a lawyer for specific legal advice. No attorney client relationship is created here.

Terry L. :

When one land owner files bankruptcy, the bankruptcy court can liquidate their portion of the assets to pay that debtor's creditors.

Terry L. :

If there is no equity in the property, the trustee won't do it.

Terry L. :

So, value -mortgage and liens, = remaining equity.

Terry L. :

Divide that by 2, assuming 2 owners

Terry L. :

can also subtract costs of sale from the top too

Terry L. :

about 6% or so.

Terry L. :

So, if there is equity, the non-bankrupt owner can buy out the trustee's interest to get the full title.

Customer:

there isn't much equity right now. However, how would the court decide what the current value of the property is?

Terry L. :

Or they can let the trustee sell, take 1/2 of the net proceeds from the sale.

Terry L. :

An appraisal usually does the trick

Terry L. :

if it's still in dispute, there could be a valuation hearing

Terry L. :

any questions?

Customer:

Who would do the appraisal?

Terry L. :

Independent realtor/appraiser

Customer:

Ok thanks

Terry L. :

The debtor would have to obtain it

Terry L. :

any other questions?

Customer:

To summarize, I either need to buy my partner out if it is determined that there is equity. Or, if not enough, the trustee would leave it alone. Or my partner could buy his half back from the trustee. Or the court seizes it, sells the whole thing and then my 1099 goes out.

Terry L. :

yes, exactly

Customer:

Damn, that's a really raw deal for me.

Customer:

thanks.

Terry L. :

You get your fair value either way

Terry L. :

or you can buy the property in full.

Terry L. :

You're not shortchanged.

Customer:

well, the biggest issue for me is to prevent the 1099 from going out this year. I'm trying to limit my tax liability. If he's bankrupt, and the 1099 goes out, will I only be liable for half, or the whole thing?

Terry L. :

Talk to your tax guy about that, but if you buy out the trustee, then the asset is yours 100% along with the debt

Terry L. :

It could come down to date of settlement too, and if the terms of the settlement allocated the distribution

Customer:

I see. Ok. Thanks for your time.

Terry L. and other Bankruptcy Law Specialists are ready to help you