Dear Bankruptcy Adviser,
Under the terms of our divorce, my ex-husband is allowed to stay in the house we shared -- as long as he makes the payments. The house is for sale, but we are both on the title and both liable for the mortgage. My ex has had a drop in income and now wants to default on the mortgage, but remain in the home. He will file bankruptcy if the lender threatens foreclosure, in order to extend his living there.
I would like to know if the property can be put into bankruptcy against my will, since he doesn't own the entire house. Could a bankruptcy trustee do anything with his half of the house without my cooperation? Can bankruptcy protect him from his joint debt without my cooperation? Can I attempt to get a court-ordered quitclaim deed from my ex, since he's in contempt of the divorce decree and causing harm to my credit while waiting for a sale in a distressed market?
There is nothing worse than getting more bad news. At the very least, while you are not going to like what I have to say, you will get a straight answer.
Question No. 1: Can my ex-husband file bankruptcy without my consent?
You have absolutely no control over your ex-husband's pending bankruptcy filing. He can legally file for bankruptcy protection and delay the sale of the house, and there is absolutely nothing you can do about it.
Question No. 2: Can the trustee do anything with half of a house?
When a bankruptcy case is filed, a trustee is assigned to review the paperwork and recommend whether the filer has a right to seek protection. The trustee is looking for assets he or she can sell and give to creditors. Unless there is equity in the house, the trustee will have no interest in the property. So the trustee will be of no help to you.
The more distressing news comes when there is equity in a house. The trustee could force the sale of the property, without your consent, in order to pay creditors. You might have some rights to the equity in the house, but you would have no rights to stop the trustee from selling the property in the event equity exists. Meaning, if you are entitled to half of the equity, you would receive your equitable interest upon the sale. But you could not stop the trustee from selling the property.
Obviously, this option could be a disaster if you were hoping to sell the property in the future when the market improves and the equity increases. Since you state correctly that the housing market is distressed, the trustee might not receive much from the sale.
Question No. 3: Can ex-husband be protected from the secured debt without your consent?
Not only can your ex-husband be protected, but you might now face additional exposure. Depending on the state where you live, the lender might sell the house in a foreclosure sale and have a right to come after you for any deficiency balance. The deficiency balance is the amount owed after the sale. For example, the house is sold for $200,000, but the loan against the house is $250,000. That means a balance of approximately $50,000 will remain after the sale. Depending on your state laws regarding post-foreclosure deficiency balance, you could be liable to pay the deficiency. And yes, your ex-husband could be free of this debt because he filed bankruptcy.
There is a huge exemption to this horrible fate, and that would be a question for your divorce attorney or for the family law court where you filed for the divorce. Basically, if your husband agreed to pay on the mortgage in the divorce decree, and then the house is sold in foreclosure and a deficiency balance remains, he could still be liable to pay even after filing bankruptcy. I am not a family law attorney, and there always may be exceptions that I don't know about.
Question No. 4: Can you sign off your interest in the property?
Yes, you could probably have your name taken off the title to the property before he files for bankruptcy protection, but that will not help you at all. Your name is still on the loan. And unless you can somehow get your name off the loan, you could still be liable. I cannot think of any way, short of refinancing a property, to get your name off the loan. And if there is little or no equity in the house, refinancing would likely be impossible.
As I said, I will tell you the truth -- even if it isn't good news. At this point, you might need to consult with your divorce attorney, if you hired one. Or you may need to go back to the family law court to confirm his or your future liability.
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