Re: Home Property

If the home has zero or minimal equity (less than $17,450), in a hypothetical Chapter 7 bankruptcy filing the Trustee would abandon his/her claim to the house. The effect of an abandonment by the Trustee is to return title of the property to the debtor. So long as the debtor is current on the mortgage payments, the house will remain in the debtor's name after the debtor receives a discharge in bankruptcy. I would recommend that the debtor reaffirm the mortgage loans in the context of the bankruptcy case by signing reaffirmation agreements. Otherwise, it may be difficult for any subsequent beneficiary to assume the loan obligation. The concept of reaffirmation is analagous to the debtor agreeing to pay the creditor under the terms of the original loan documents as if no bankruptcy case had ever been filed.

There is no need to do a quit claim deed immediately after the bankruptcy, unless you want to do so for estate purposes; i.e., creating a joint ownership so that the house passes to the joint owner outside of probate. Technically, most mortgage documents do not permit the owner to transfer ownership interests. The obvious exception is when the owners sells the house outright to a 3rd party, which requires that the mortgages be paid off in full as a condition of giving good title to the purchaser. Upon death of your loved one, I am sure that the mortgage holders would consider a request from the new owner(s) to assume the existing mortgages.

My firm handles both bankruptcy and estate planning matters. If you want to discuss this matter with me, please contact me at (201) 498-0400.