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Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2878
Experience:  Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.
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I have a question about joint tenancy in bankruptcy. Suppose

This answer was rated:

I have a question about joint tenancy in bankruptcy.

Suppose a mother bought a house in 2006. Later that year she put her son on title as a joint tenant.

Seven years later the son files for bankruptcy. He is claiming his $30,000 homestead exemption on his own property in Utah.

The mother's house has a $100,000 in equity. They were supposed to remove the son from title years before, but never did. The mother can claim her own $30,000 exemption on the house, but that leaves $70,000 in equity available for the son's bankruptcy court to seize.

All of the equity came from the mother selling her house in California. None of it came from the son who was really just along for the ride.

How does a bankruptcy court look at this? Is the mother going to eat a $70,000 loss because she forgot to remove her son from title and he filed bankruptcy?

Or can she claim a higher percentage of equitable ownership? In a Utah divorce for example, equitable ownership is given. If one party brought the majority of equity to a property it isn't just split 50/50 at the divorce.

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. :

The bankrutpcy court looks at it this way:

Terry L. :

Son and mom each own 1/2 of the equity. Contribution does not come into play.

Terry L. :

So, take the value of the home, subtract liquidation costs (roughly 3-6%) then subtract mortgages.

Terry L. :

Divide the remainder by 2. That figure then represents each owner's share of the equity.

Terry L. :

The court can liquidate the property to get to son's share.

Terry L. :

Or the mother can refinance to pay the trustee the son's share.

Terry L. :

There is no exemption at play here.

Terry L. :

The trustee can get to the son's equitable portion of the property and either force the sale, paying mom her share, and using the remainder to pay his creditors, or selling it to mom (who can usually refinance with court permission to get the cash to pay the trustee).

Terry L. :

The other alternative is for the son to convert to chapter 13 to pay back that same amount of the equity to his unsecured creditors over the next 3-5 years to protect the asset.

Terry L. :

Did you have any further questions?

Customer:

Okay. So the mom would get her own $30,000 homestead exemption and she has another son who lives there. Could he get a $30,000 homestead exemption as well? That would give them a $60,000 exemption.

Terry L. :

not quite

Terry L. :

she doesn't get a 'homestead' exemption

Terry L. :

it is available to the debtor

Terry L. :

and he used his in utah

Terry L. :

there are no exemptions to use for the other owners

Terry L. :

and second son, if he's not on title on the date of filing, has no impact here either

Terry L. :

value - costs of sale - mortgages = equity. 50% to mom, 50 % to son. trustee can liquidate son's portion

Terry L. :

that's the equation. no other factors

Terry L. :

Peter, did you have any other questions?

Customer:

http://le.utah.gov/~code/TITLE78B/htm/78B05_050300.htm

Customer:

yes, I don't understand why the mom can't get a homestead exemption

Terry L. :

mom didn't file bankruptcy, that's why

Terry L. :

debtors get exemptions, not non-filers.

Terry L. :

If she was filing, she would get it

Customer:

but Utah Code 78B says all home owners get the exemption even if she didn't file a bankruptcy

Terry L. :

her share of the equity is protected with the homestead

Terry L. :

not the son's share

Terry L. :

exemptions would go to that person's share.

Terry L. :

So mom's 50% equity would be protected by homsetead if she was filing or if her creditors were trying to get to that equity

Terry L. :

her homestead has no impact on the son's share of the equity

Terry L. :

do you follow?

Customer:

Understood, but her homestead does protect her $30,000 share right?

Terry L. :

protects her share of the equity, sure, but the bankruptcy court doesn't even bother with that,

Terry L. :

so it has no impact on the calculations ehre

Terry L. :

here

Customer:

I think I see what you are saying

Customer:

the house has $100,000 in equity. The son is entitled to $50,000 of that

Customer:

so the mom's homestead of $30,000 doesn't exceed the $50,000 that's hers anyway.

Terry L. :

she keeps here share either way, exemption or not. yes

Customer:

so the court will only go after the $50,000 that's his equity. Her exemption won't be a factor here

Terry L. :

correct

Customer:

thanks.

Terry L. :

sure thing!

Terry L. :

best of luck to them

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