How Inherited Property May Affect a Bankruptcy

The U.S. Court of Appeals for the Eighth Circuit recently released a ruling that demonstrates when and how a bankruptcy trustee may take possession of a debtor’s inherited property and order it to be sold for the benefit of the bankruptcy estate. The appellants in the case of Peet v. Checkett challenged a bankruptcy court’s decision allowing the trustee to order the sale of a home and vehicle that the debtors inherited from one of their parents after the bankruptcy was filed. Both courts agreed that the sale was appropriate because the debtors shared ownership of the property with their parents as joint tenants before the bankruptcy was filed, and upon the parents’ death, the property transferred directly to the debtors’ bankruptcy estate, instead of becoming a part of the parents’ estate as other property had become.

Dollar BillsThe Type of Joint Ownership is Dispositive

The courts’ decisions in the Peet case were determined by the type of joint ownership with their parents that the debtors shared of the property. There are two main types of joint ownership of real property, joint tenancy and tenancy-in-common. Property held by two or more persons as joint tenants will not go through the estate of an owner who dies while other joint tenants remain alive. If one or more joint tenants of a piece of property passes away, the title to the property continues to be shared equally among the remaining owners. In the event of the death of an owner of property held by tenants in common, the deceased owner’s share of the property will go through their estate, and the surviving owners will possess the same share of the property as they did before the other owner’s death. The differences between these two types of joint ownership are important in many areas of law, including bankruptcy law.

Since the Debtors and Their Parents Owned the Property as Joint Tenants, the Bankruptcy Estate Could Seize the Property After the Parents Died

The property that is discussed in the Peet case was owned by the debtors and one of their parents as joint tenants. After the debtors filed for bankruptcy, the property was out of reach of the bankruptcy estate because the parents were not a part of the bankruptcy case. As soon as the parents died, however, the debtors became the sole owners of the property automatically, since they shared a joint tenancy with their parents while they were living. Since the debtors were the only owners of the property after their parents’ death, the bankruptcy trustee was allowed to sell the property to benefit the couple’s creditors. If the property had been shared by the couple and their parents as tenants in common (or if the couple had no interest in the property), the parents’ share would become a part of the parents’ estate upon their death, could later be obtained by the couple, and would not be immediately accessible to the bankruptcy trustee.

Are You Considering Bankruptcy?

If you feel that you are in over your head in debt, bankruptcy could provide a solution to your financial woes. It’s important for debtors to have their cases properly prepared before filing for bankruptcy, and an experienced bankruptcy attorney can help anticipate and resolve hidden issues that may arise with inheritances or jointly held property that may become part of a bankruptcy. The Louisville and Southern Indiana bankruptcy attorneys at the Schwartz Bankruptcy Law Center have the knowledge and experience that allows our clients to protect as much of their property as possible throughout the bankruptcy process. Don’t wait any longer. Make a decision to get your finances back on track today. Contact us online or call 866-366-3328 to schedule a free consultation.

More Blog Posts:

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Ninth Circuit Reverses Bankruptcy Panel’s Finding that Attorney’s Debt Was Not Dischargeable, Kentucky Bankruptcy Lawyers Blog, published May 12, 2016.

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