23 May Can I Use Chapter 13 to Save an Elderly Parent or Adult Child’s Home?
In the real world, families help each other. Sometimes this help can be in the form of co-signing a debt or even entering into debt to help a family member. In my practice I frequently see situations where an adult child signs as the sole or primary mortgagee for a parent’s house. Sometimes a parent will enter into a mortgage contract to help a son or daughter who is just starting out.
What happens to these mortgages when the primary borrower files Chapter 13 bankruptcy? Will mom and dad, or the young adult children of the borrower lose their homes?
Chapter 13 law does not contain any prohibitions against using Chapter 13 to protect a home that the debtor does not personally occupy. However, such a situation will create complications in Chapter 13 cases. In the Northern District of Georgia, where I practice, the Chapter 13 trustees take the position that your creditors should not bear an extra burden if you want to protect another’s property.
At a minimum, simply by remaining liable on a mortgage that benefits your parents or adult child, you are taking on potential risk that does not directly benefit you economically. Even if you are not coming out of pocket on a mortgage, your financial resources and your capacity to pay other creditors could be at risk of your parents or adult child does not pay the monthly note. Some trustees might try to quantify this risk by demanding a higher dividend to unsecured creditors.
If you are assuming some or all of the burden to make the payments, then you are using money that would otherwise go to your unsecured creditors to pay for housing that does not benefit you or your direct dependents. In this type of situation, the trustee would most likely demand that you pay 75 to 100% on claims filed by unsecured creditors.
Sometimes you have a family or moral obligation to help a parent or a child. However, this moral obligation is not equivalent to an economic obligation and bankruptcy concerns itself with economic realities.
Jonathan Ginsberg, Esq.
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