Joint Property Ownership and Bankruptcy in New Jersey

chapter 7 bankruptcy in new jersey

When you have unmanageable debt, sometimes the best way forward is through a personal bankruptcy petition. If you own joint property with friends or family members, things could get a little more complicated. If a family member co-signed for you or a parent added you to a bank account or deed as an estate planning tool, you will need to know how your bankruptcy will potentially impact this jointly-held property. There are a lot of variables when it comes to joint-owned property and bankruptcy. Here we look at what to expect as you move forward with your bankruptcy petition.

When you file for bankruptcy, your assets become property of the bankruptcy estate unless you can properly exempt it. Depending on how you file for bankruptcy, this could mean different things for your nonexempt property. Under Chapter 7 bankruptcy, the trustee managing your bankruptcy will have access to all property to which you have a claim. This property can be sold to pay your creditors. Under Chapter 13 bankruptcy, any property you jointly own with others will enter into the calculation used to determine how much you will need to pay your creditors.

Bankruptcy exemptions can be used to protect a specific amount of property under Chapter 7 bankruptcy or reduce the amount you will have to pay back your creditors under Chapter 13 bankruptcy. In most situations, if the property you jointly own has no equity or is fully exempt, it will not be impacted by the bankruptcy. If you can prove to the courts that the funds used to purchase the property were principally contributed by your co-owner, then you may be able to get the property exempt from your bankruptcy case to protect your co-owner’s interest.

There are some situations in which your jointly owned property will be considered part of the bankruptcy estate. New Jersey is a common law property state. This means that in most legal matters, each co-owner’s individual interest in joint property is treated as that person’s separate property. The courts will tend to view an jointly held property as owned equally by all parties. So if you own property with one other person, half of the properties value will be considered your individual interest. Therefore, only your portion of the joint asset will enter the bankruptcy estate and the trustee will be unable to take your co-owner’s portion to pay back your creditors.

It is important to note, though, that if you cannot get the property exempt or if the property has equity, your trustee may be able to sell the entire property. Even if your co-owner’s share isn’t part of the bankruptcy estate, your trustee could prove that the benefit of selling the property as a whole overrides any inconvenience or loss to your co-owners. If the trustee is able to get the courts to approve the sale of the property, the proceeds will need to be used to pay the co-owners their share.

In New Jersey, the courts have made it clear that if you are not in bankruptcy, creditors cannot force the sale of jointly owned real estate to settle what an individual debtor owes to their creditors. Therefore, by filing for bankruptcy you could unintentionally be putting jointly owned property at risk of being sold. Keep in mind also that a bankruptcy involving joint property could negatively impact you co-owner’s credit record. To avoid these consequences, it may be worthwhile to look into alternatives to bankruptcy.

The best solution to this issue is not to title assets jointly if you or your potential co-owners are facing financial difficulties. Of course, this isn’t always realistic and sometimes financial difficulties are unpredictable. If you are facing unmanageable debt and want to protect your jointly owned property and your co-owner’s interest, you have options. Veitengruber Law is an experienced bankruptcy law firm. We can help you understand all of your options and demystify the complexities of bankruptcy proceedings.

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