Question: What Happens To Real Estate That You Own In A Chapter 7 Case When It Is Not Your Residence?
Many people tend to think that they can keep real estate that they own in a Chapter 7 case as long as they are current with the payments at the time the case is filed. However, that is not always true. Debtors must take care to disclose the status of real estate with regard to value, outstanding debt, and payment status to their attorney. No one, including the attorney, wants any surprises.
Facts: Debtor was living between her home and her mother’s home who she cares for. She had a mortgage on her home and her son lived in the house and paid the mortgage. She had approximately $14,000.00 in equity in the home. Her living arrangement with her mother was not disclosed during the consultation, review, or filing appointments.
At court, the debtor informed the Trustee of these things. This was the first time the attorney heard of this arrangement. She had also claimed the equity as an exemption under U.S.C. 11 section 522(d)(1). The Trustee determined this was an asset case and objected to the exemption on the basis that she could not exempt this equity because it was not her residential real estate since she resided at her mother’s home. All of her mail went to that address, her driver license had that address, and this was also the address she used for voter registration. The Trustee later filed a Motion to Sell the Real Estate which the Court granted.
This was not the client’s intention. She wanted to keep her home and eventually move back in permanently with her son. In an effort to save her home, she moved the Court to convert to Chapter 13 which was granted without objection by the Trustee. She must now fund a plan to pay money to her unsecured creditors.
The moral of this story is to fully disclose your assets and any arrangements involving those assets to the attorney. It is a matter of losing assets you think may be protected by exemptions which may not be the case. Those assets can be liquidated through sale in a Chapter 7 case by the Trustee to pay your unsecured creditors for the debts you owe. The attorney can best advise you on how to handle your assets. Remember that what you don’t disclose can hurt you by either losing the asset, forcing you into a Chapter 13, or most harshly losing the asset and not receiving a bankruptcy discharge at all.
