In recent years, it has become increasingly common for parents, grandparents or others who may be going through the process of estate planning to add the names of loved ones to the deed of a home or other parcel of real estate which they intend to leave to them one day. This may be done for a variety of reasons, but most typically takes place for the purpose of simplifying the transfer of the property after the passing of the person that it originally belonged to. However, adding the name of a loved one to a deed also inherently changes the ownership status of the property; rather than the property passing to the heir upon the death of the person who originally owned it, it now instead belongs to both the grantor and heir jointly at the time that the new name is added to the deed.
Possessing this ownership interest impacts the financial circumstances of the person who is receiving it in a number of ways; chiefly, that they will now be considered to own half of the equity of the house in question (assuming that there are a total of two people on the deed; if more than two people are on the deed, ownership interest would be distributed among them proportionately). In Minnesota, title and deed are considered to be 100% indicative of ownership, meaning that regardless of whether you paid for the property, the fact that your name is attached to it means that you now have an ownership interest in the equity to the same extent as the person who purchased and paid for the property originally.
In bankruptcy, the primary way that this becomes relevant concerns something called exemptions. Essentially, exemptions are categories of property distinguished under the law as being protected in the bankruptcy process. One of the most significant exemptions available to those pursuing the bankruptcy process is known as the “Homestead Exemption”, which allows people to protect the equity in a home that they live in during their bankruptcy filing. Critically however, this exemption does require that you reside in this property at the time that the bankruptcy is filed in order to use the homestead exemption to protect it. Thus, if you own equity in a house that you do not reside in, you would typically not be able to use the homestead exemption to protect it.
This does not mean that you will be barred from filing however, or that you would necessarily have to lose your interest in this home equity as a part of the bankruptcy process. The first way that some, or all, of this home equity could be protected is through employing a separate exemption known as the “Wildcard”. If you do not own any real estate other than the property which you received an ownership interest in, then you can potentially use the wildcard exemption to protect your equity in that property up to a certain dollar amount.
The second way that you can protect this equity is through a pursuing a Chapter 13 bankruptcy, in which you make payments into the bankruptcy over the course of three to five years, based upon your financial means. You are generally not required to turn over or surrender non-exempt property in a Chapter 13 bankruptcy, meaning that pursuing a Chapter 13 filing can potentially allow you to protect any equity that you have in the home that would otherwise be considered non-exempt.
Lastly, you can potentially protect your equity in the home by permanently moving into the property and establishing it as your residence prior to filing. This specific option is typically applicable in situations where a parent or loved one has granted you an interest in their home in anticipation of you moving into it with them. If this is the case, you may be able to protect your equity in the home by acting on this intent and moving into the property before your bankruptcy is filed. In speaking with your attorney, they will advise on the best route to protect any real estate equity that you might own.
Bankruptcy is intended to be a fresh start, a relief from the financial stresses that we face which grants us the opportunity to pursue our long-term goals and build for the future. It is our firm belief that this process should be available to all who need it, regardless of whether you find yourself in a situation where you have an interest in assets that you might not have planned on acquiring, such as owning equity in the home of a loved one. Our highly experienced staff are experts in tailoring bankruptcies to fit your specific financial needs, and we would be more than happy to consult with you about the different ways in which we can protect both your interests and your assets during the bankruptcy process.
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