10 Apr Can the Chapter 7 Trustee Seize Your Home if the Home’s Value Increased After the Bankruptcy Filing?
Aggressive actions by Chapter 7 trustees in cases filed in the Northern District of Georgia have led me to change what I tell clients about post-filing financial activities. One of these cases involved the son of one of my clients and may cost my client many thousands of dollars.
In this case, the debtor and his wife filed a joint petition and scheduled their home with a value of $200,000 and outstanding mortgage debt also in the amount of $200,000. Several months prior to filing, the debtors’ home had been damaged by flooding and a tornado. While the pre-tornado value of the home was approximately $275,000, at the time of filing the debtors used a value of $200,000 based on needed repairs.
Significantly, this case was an “asset case,” meaning that the debtors had non-exempt assets (in this case exercise equipment, firearms and paintings) which were turned over to the Chapter 7 trustee for sale, with the proceeds being paid to unsecured creditors.
Because this was an asset case, the Chapter 7 estate remained open for many months. Had this been a “no asset” case, the Chapter 7 would have been closed approximately 5 or 6 months after filing.
Approximately 8 months after filing, the debtor’s house remained in disrepair and the trustee had taken no action to claim any interest at all in the house. The debtors approached my client (debtor husband’s father) for a loan to repair the flood and wind damage. My client loaned the debtors approximately $75,000 which they used to replace the roof, carpets and repair interior walls. Following these repairs the home appraised for over $300,000.
Almost a year after the repairs were completed, with the case still open, the trustee notified the debtors that he was sending an appraiser and agent to view their home. The trustee has now filed a notice in Court that he intends to pursue the equity in the home as an asset of the estate.
The debtor and his father now have the unpleasant task of fighting the Chapter 7 trustee regarding the post-petition appreciation in the debtor’s home. I am not handling this litigation but I expect that my client will end up spending $15,000 to $20,000 to argue his case – and he may not win.
The lesson here – be very wary about investing money to improve an asset while your Chapter 7 case is open. When you least expect it, your Chapter 7 trustee may appear to participate in this appreciation.
by Jonathan Ginsberg, Atlanta bankruptcy lawyer
Jonathan Ginsberg, Esq.
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