Anyone know about personal bankruptcy and real estate?
Asked by
6rant6 (
13705
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February 26th, 2012
A friend brought me this question. I didn’t have an answer for him.
He divorced a couple of years ago. He and his ex still jointly own a house. It has negative equity. He has been trying to sell it, and will negotiate with the bank to get out from under the loan.
He’s just learned that his ex is filing for bankruptcy. How is that likely to affect things?
He is seeing an attorney on Monday. And that will be expert opinion of course. He would just like to go in with some general sense of things so he can figure out if the attorney is way off base. ‘Cause you know… attorneys…
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4 Answers
I’m not sure, but I think he will probably be stuck with the entire debt. It migh really depend on the State.
Why in the world didn’t they resolve ownership of the house in the divorce??
Why in the world didn’t they resolve ownership of the house in the divorce??
Negative equity. Divorce rates have actually dropped because of it. Instead of a simple Quit Claim, you would have to pay your spouse to make them keep the house.
It also makes this bankruptcy question kinda mind-blowing.
If they had equity, the bankruptcy trustee could force a sale, and “force” the non-bankrupt party to accept half the proceeds.
But in recent years this is probably not a unique situation, I am hoping someone more knowledgeable will chime in.
@6rant6 please update the thread if you can tell us about the lawyer’s advice and the final outcome!
This should have been addressed in the divorce decree on the division of assets and debts. I hate to say this but if he sells it at as a short sale which would be selling for less than what is owed the bank and he doesn’t have it to pay them then it could hurt both their credit because the loan is in their name. I would tell him to talk to the bank and see if he can get her name off the loan and see if he would qualify for one of the things out there to lower his rate therefore lowering his monthly payment. It won’t change being upside down on the property but at least he is paying less interest on the loan which is what you pay most of in a monthly payment on a home loan especially when in the beginning years of the loan. Maybe on an upside if can get a lower payment then he hold the property and can sell when he actually has some equity in the property instead of the other way around.
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