When considering filing for bankruptcy, it is important to understand what will happen to your shared property.
The type of bankruptcy being filed will determine how your shared property is handled. In a Chapter 13 filing, your assets like a house or car are protected and payments towards those loans are included in your repayment plan. Most commonly, property is affected by a Chapter 7 filing, wherein assets are liquidated to pay towards the debt.
After filing for Chapter 7 bankruptcy, a trustee will be appointed to sell off any non-exempt assets. The proceeds from the sale of assets will then be used to pay off some or all of the debt. In Arizona, real estate owned by two parties (most often spouses) will be affected if any one of the parties files a Chapter 7 petition. Because Arizona is a community property state, any assets acquired during marriage are equally shared between the spouses, even if the assets are only listed under one spouse’s name. Therefore, these shared assets will be affected by either spouse filing for bankruptcy under Chapter 7.
However, there is an exemption in Arizona that may protect your house. The homestead exemption can protect up to $150,000 of home equity in a Chapter 7 filing and, in most cases, this is enough to protect the filing party’s share in a house. If this exemption is not enough to protect the property, the trustee will proceed with the sale of the share of the property owned by the debtor. The secondary owner will be provided an opportunity to buy the debtor’s share of the property. If declined, the whole property will be sold, with profits being shared between the second owner and the trustee to be paid towards the debt.
Regardless of the relationship between owners of a property, a Chapter 7 bankruptcy filing will inevitably affect all parties involved. To help determine which type of bankruptcy filing may be best for you and your property, it is important to speak to and retain an accomplished bankruptcy attorney.