When you file bankruptcy you are required to list all of your assets on your petition. This includes any real estate you currently have an interest in. What a debtor should also consider is any previous real estate transactions they may have been involved in. This is especially true for recent real estate transactions. A trustee will likely inquire about any recent sales or purchases of real estate. If the property was sold, there will likely be questions about proceeds from the sale and how the funds were spent.
But, what could potentially get over looked are older real estate transactions particularly those transactions or transfers that were not technically a sale, but were transferred via a divorce decree. A debtor should take extra care to review real estate transferred via a divorce decree. If the former spouse was awarded the homestead in the divorce, the debtor should verify the real estate was conveyed properly. Section 544(a) of the Bankruptcy Code allows a trustee to avoid any transfer of property of the debtor that is voidable by a hypothetical creditor that extents credit to the debtor as of the petition date and obtains either a judicial lien or execution against the debtor. This means the chapter 7 trustee could defeat the rights of the holder of an unrecorded divorce decree and the bankruptcy estate would then be entitled to take a one-half interest in the real estate.
Since real estate transactions must be recorded, a divorce decree must be registered (county property records) to be effective as a conveyance of real property or the divorced couple must have executed a quit claim deed conveying the one-half interest to the awarded spouse. Although a divorce decree is effective in dissolving a marriage, it is not effective as a conveyance of real estate interests.
A deed that is recorded pre-petition or property transferred via quit claim deed pre-petition is not subject to the chapter 7 trustee’s avoidance power.
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When discussing your case with your attorney it is important to scrutinize any previous real estate transactions to ensure the real estate was properly conveyed. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.
