- Review the role of a trustee in a bankruptcy.
- Examine how a house without equity will be viewed in a bankruptcy.
- Consult with an attorney, if you are considering filing for bankruptcy or looking for legal advice about bankruptcy.
How does my ex's Chapter 13 affect my home, if she is still on title to the property?
My ex is still on the title to our house but I am the only one on the mortgage, which is current. She is filing for bankruptcy and said that the lawyer needs information regarding the house. The house is underwater; the value is $89,500 and the mortgage balance is $185,000. Will the bankruptcy trustee view the house as an asset to her because of her name on the title? Would it not be considered a liability for her because she is not on the mortgage? What other concerns should I have?
Thank you for your question about a bankruptcy your ex-spouse is filing, how your home will be affected by the bankruptcy, and what options you have. Before I share my thoughts on your situation, I want to make it clear that I am not a bankruptcy attorney. I can’t give you definitive information or legal advice. Any time that a person is considering bankruptcy, he or she should meet with a licensed, experienced attorney.
Types of Bankruptcy
You did not specify whether your ex is filing for Chapter 7 or a Chapter 13 bankruptcy. Chapter 7 is a liquidation bankruptcy. Under Chapter 7, assets are sold and the proceeds are used to pay debts. This chapter is also for people without assets. Chapter 13 is a reorganization bankruptcy for individuals. In Chapter 13, the court orders a repayment plan, restructuring the individual's debts to repay the creditors over time, sometimes at a reduced rate.
Role of Trustee
Once your ex files for bankruptcy protection, the bankruptcy court will appoint a trustee to oversee her case. The trustee’s job is to act as a referee. The trustee is impartial. The trustee acts to make sure that all assets of the estate are included in the bankruptcy. The trustee can collect property of the estate and raise claims regarding the exemptions a bankruptcy petitioner may claim. The trustee can also liquidate any of the estate’s property that is deemed non-exempt and then distribute the funds to appropriate creditors.
In a Chapter 7 Bankruptcy, the trustee’s role is limited. In most Chapter 7 cases, the debtor doses not have any assets available. In cases where there are assets, however, the trustee is responsible for the liquidation of debtor’s assets and distribution of money to the creditors. The trustee monitors the bankruptcy. The trustee examines the exemptions that a debtor claims and makes sure that the debtor is sticking to the plan of action laid out by the court, alerting the court if the debtor does not comply. The trustee is also involved with meeting with creditors. The trustee is empowered to deny a debt being discharged, if the trustee sees evidence that the debtor has supplied inaccurate information that is fraudulent or perjurious or if the trustee discovers that the debtor is not eligible for bankruptcy protection.
In a Chapter 13 filing, the trustee has a more active and in-depth role. A Chapter 13 bankruptcy does not involve the liquidation of the debtor’s assets. Instead, the trustee works to manage the debtor’s finances, so that the creditors are receiving full or partial payment of the outstanding debts. The trustee attends all the hearings that determine the asset value of the estate’s assets, monitors the payments from the debtor, and disburses the money to the various creditors.
In a Chapter 7 bankruptcy, the trustee may liquidate a debtor’s assets, if there are any. However, the trustee can’t seize and sell every asset that belongs to the debtor. Some assets may be exempt from any creditor claims. These assets are protected, in part or in full. The size of the exemptions varies from state to state. Some states offer wide protections to the debtors, allowing the debtor to hold onto significant assets. Other states are much less consumer-friendly and offer very narrow exemptions.
For example, a person in Florida could file for Chapter 7 bankruptcy and liquidate all of his debts while retaining ownership on a primary residence that is worth $1,000,000. This is because Florida has an unlimited bankruptcy exemption for a homestead; the entire value of the home is protected from creditor claims. Contrast this with Kentucky, where a person can only have $5,000 in equity of his or her primary residence.
Other exemptions cover the value of a vehicle, the funds in bank accounts, and some personal property. Again, exemptions vary from state to state. Bills.com has prepared a chart for you to view the collections exemptions broken down by state.
Let’s assume that your ex is filing for Chapter 7 bankruptcy. A trustee will be appointed for her case. The trustee will view your ex’s liabilities and assets. The trustee could liquidate a non-exempt asset or an asset with an equity stake larger than the exemption. In Arizona, the homestead exemption is $150,000. That means that $150,000 of your home’s equity is protected from any claims.
For a moment, let’s assume that you are in Kentucky, a state with a woefully low homestead exemption. Even in this case, your home would not be at risk. The bottom line is that there is no positive value to your home. If the trustee wanted to force the sale of the home to satisfy creditors, it would not end up with any money to do so. You owe more than the house is worth. The trustee will not force the sale of a home whose sale price would not even pay off the existing mortgage; there would be no funds to use to pay any creditors when the homeowner is upside-down on the mortgage.
As I mentioned at the top of my answer, consult with a lawyer who has experience in bankruptcy law. My window into your issue is very small and based only on the handful of facts provided. There may be other facts relevant to your case you did not mention that would change my observation. A lawyer will review all of your documents in a face-to-face meeting, ask probing questions, and spend time analyzing your issues to give you a precise opinion.
Dealing with debt
Debt is used to buy a home, pay for bills, buy a car, or pay for a college education. According to the NY Federal Reserve total household debt as of Q2 2022 was $16.15 trillion. Auto loan debt was $1.50 trillion and credit card was $0.89 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Massachusetts, 18% have student loan debt. Of those holding student loan debt, 5% are in default. Auto/retail loan delinquency rate is 2%.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.