Mortgage in One Name, Title in Another – Can I File Bankruptcy?

by Jonathan Ginsberg, Esq.

May 9, 2007

Not every real estate ownership situation is “clean” and easy to fit into a bankruptcy.  I recently received the following email from a lady named Bonnie, which reads as follows:

i have a house which i live in, i also have a rental property, that my daughter lives in, the deed to the rental property is in her name,but the mortage is in my name, if i file bankruptcy will she lose her house and will i lose my house? please help

Here is how I would analyze this situation.  First, I think that there could be a risk that Bonnie’s daughter might lose her house.  In a Chapter 7 situation, Bonnie would have to “reaffirm” the mortgage debt in order to preserve her daughter’s possession of the house. The problem – Bonnie does not live there and the daughter’s home is not necessary for Bonnie’s financial rehabilitation.

Prior to the 2005 change in the bankruptcy law reaffirmation agreements were often one or two page documents that did not get much scrutiny by the judges.  The new law added an entire layer of complexity to reaffirmation agreements, which are now 10+ pages.  Both the debtor’s lawyer and the debtor must certify that the reaffirmation agreement is feasible and in the best interest of the debtor.  Is it in a bankruptcy debtor’s best interest to remain liable on the mortgage note for a house that she does not live in, and that is not titled in her name?  Would the Chapter 7 trustee, as the custodian of the debtor’s estate, oppose a reaffirmation?

Bonnie does not tell us if there is any equity in her daughter’s house.  If there is any equity, she may or may not be able to claim a “homestead” exemption for this property.  I cannot speak for States other than Georgia, where I practice, but in my mind a homestead represents a place where you live – here, Bonnie already has a home in another location.

Similar problems might arise in a Chapter 13.  If the mortgage for the daughter’s house is in Bonnie’s name, then Bonnie bears sole legal responsibility for payment of that mortgage.  In a bankruptcy budget we would show the mortgage debt on Schedule J as an expense and the daughter’s payment as a “contribution” to Bonnie’s income on Schedule I.

In the Northern District of Georgia, the Chapter 13 trustees would see this arrangment as an unnecessary complication.  The feasibility of Bonnie’s Chapter 13 plan hinges on her daughter’s continued employment.  Here, a plan that includes a payment obligation for an adult child’s home could be confirmable, but I suspect that the trustee would want a 100% dividend to unsecured creditors.

The bottom line – a creative lawyer could squeeze Bonnie into a bankruptcy, but as you can see from my brief analysis, the fit is a poor one.  This is most likely a case where Bonnie and her daughter ought to spend some time with a bankruptcy lawyer and perhaps look at some non-bankruptcy alternatives such as refinancing to get the mortgage obligation out of Bonnie’s name.  Thereafter – perhaps after waiting several months – Bonnie could pursue a bankruptcy if she needed to do so, without the complication of the rental property.

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including www.atlanta-bankruptcy-attorney.com and an Atlanta bankruptcy blog, www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.

Last modified: May 9, 2007