Bankruptcy & death

[awsedrft]

I have an unusual situation involving two houses, a child and a deceased parent. More below...

• State: Georgia

So - the only remaining parent has a small home with an substantially overvalued mortgage. The mortgage is barely paid off.

The parent's child has a home too. The house deed is in the name of the child and parent. It is paid for but the child has several large debts and is unable to sell the home since collection agencies could legally seize proceeds from the sale. The child believes there is a lien on their house deed. The child's tiny home is in awful condition, btw - asbestos, broken sheetrock, you name it.

Unfortunately, the parent recently died, but not before signing bankruptcy papers. A 341 hearing was scheduled, but he passed before being able to attend. The courts have assigned a "Trustee" to decide what to do, but they have never encountered anything like this before. In the meanwhile the child is unsure what to prepare for. The child fears possibly losing both homes.

An attorney first said there is a strong possibility that (because of the overvalued mortgage) the parent's home may be written off as bad debt, and the child would actually retain both homes. As time passes on this seems increasingly unlikely, from a layperson's view.

There are two creditors in play - one owns the mortgage to the parent's home. The other has a lien on the child's home. I see no reason why the parent's creditor wouldn't reclaim the house, sell it for what they could and then write off what was left over.

The child's home is less clear. The parent's name is co-signed to the deed of the child's home. If there were no liens on the child's home I could see where they may try to repossess the child's home to sell & apply to remaining debt. Does that make sense and is that legal considering the child is co-signed on the deed?

Another thought is that both creditors may find it mutually beneficial to cooperate in the sale of the child's home, and split the proceeds.

Do trustees take into account personal hardships, such as a death? Or do they only view cases in black and white?

Can anyone help shed any light on this complex situation?

[lrprn]

According to http://findarticles.com/p/articles/m...8889118/pg_10:

"When a debtor dies after the commencement of a bankruptcy case, probate practitioners should have no fear of violating the automatic stay simply by commencing state probate proceedings for the debtor/decedent. The rationale is that the probate proceedings will administer only those assets exempt from the bankruptcy estate, including assets that the decedent acquired after filing the bankruptcy petition."

There's a lot more information here about what each involved party in the bankruptcy can expect. Take a look (although unfortunately this contains a lot of 'legal-ese' which makes it a bit hard to understand).

[awsedrft]

Thank you. I tried reading the article but am not familiar enough with legalese to understand the gist of what it says.

Where I hope someone can help is giving us an idea of possible outcomes with the child's house in these two scenarios:

a) the bankruptcy case is thrown out
b) bankruptcy case is allowed to proceed

To review, the parent's name is co-signed with the child on the child's house deed. There is a lien against this deed from debt the child owes ($20k of debt, the home is maybe worth $30k - but needs extensive repairs for it to even pull that).

The parent's house will be repossessed to cover outstanding mortgage debt, but the mortgage was overvalued. Sale of the parent's house will not cover all debt - so will the parent's creditors be able to act on the child's house, even if there is a lien from a creditor belonging to the child?

How would bankruptcy possibly affect the house situation?

[lrprn]

...giving us an idea of possible outcomes with the child's house in these two scenarios:
a) the bankruptcy case is thrown out
b) bankruptcy case is allowed to proceed

This is a difficult situation to sort out because it involves property law, not just bankruptcy law. You really need to set up free or low cost initial consultations with 3-4 bankruptcy lawyers in your area to find out exactly where the house stands if the bk case is dismissed or proceeds to discharge and closing.

Since the house is co-owned and only one of the parties filed, the most the trustee could take is half the house. The second party would get half the cash for whatever the property sold for, and the lienholder would take most of the rest. Just a guess but I think the trustee won't find enough value pursuing a house worth $30,000 with a lien and mortgages for more than the house is worth.

Ask those experienced bankruptcy lawyers - that's the right way to approach this to ensure your family gets the best outcome possible.