House on contract

[mpulse]

My GF agreed to purchase a house on contract last February. Immediately after that she lost her job. She was unemployed for around four months and has not been able to get her feet back under herself.


Her question: Since she is filing bankruptcy and the house "sell" is on contract will she lose the house?

Thanks,
m

[StartingOver08]

It sounds like you are talking about a contract for deed, right? Does your gf want to keep the house or not?

There is a place right in the petition to list "executory contracts" which that is where this 'contract for deed' should be listed.

I believe, but not sure, that the contract for deed can either be reaffirmed or will be terminated if not reaffirmed. HHM or one of the others will know.

Well, I did a little search and look at this link that addresses Contract for Deed and BK: http://findarticles.com/p/articles/m...n8759824/pg_20

A portion of the article is here: Failure of either party to complete performance would constitute a material breach of the contract.l6

In addition, the court indicated that mortgage or security device treatment of contracts for deed is justified only to the extent that state law treats them as such in other contexts.l65 Under this view, bankruptcy courts in Florida, Indiana, Kentucky, New York, and Oklahoma, where contracts for deed receive mortgage treatment, will reach a different result than in New Mexico, where courts have not adopted such a characterization.lss

Whatever else it is, the contract for deed is a land financing device that functions economically as a purchase money mortgage. Surely this common economic function, rather than semantic distinctions about the meaning of "executory," should govern whether the vendor, purchaser, or the latter's unsecured creditors reap the benefit of the contract land's excess value in the bankruptcy context. The Restatement approach can aid this process in two ways. First, one would hope that in interpreting section 365 of the Bankruptcy Code, bankruptcy courts will look to the Restatement for support in characterizing the contract for deed as a security device rather than an executory contract. Second, state court adoption of the Restatement approach will probably ensure that bankruptcy courts sitting in that state will treat the contract for deed as a mortgage or security device for section 365 purposes.

Apparently there is dissagreement on where the contract for deed should be listed in the petition: mortgage (or security interest) or in executory contracts. Read the link for a better analysis of contract for deed and bankruptcy. Your geographic location makes a difference too.

[mpulse]

Well, I am not sure how to answer that question about keeping the house.

When she bought the house it was condemned. (Yes,she got a "deal" on it). It requires quite a bit of work. She agreed to purchase it last February and lost her job in May. She loves the house despite her lack of knowledge regarding building code and expenses (And she tends not to listen to logic). She would love to keep it despite the level of repairs necessary but she has been unable to maintain the payments at the level she had committed to.


We are located in Indiana.

Thanks,
M

[keepmine]

This is a secured debt. If she can't make the payments, she can't keep it.

[StartingOver08]

Wow...she has some real issues with that property if it was condemned when she "bought" the house.

Did she have an attorney represent her in the purchase or land contract?
Does she actually have any ownership rights to the property? What I mean to say is, how does she know that the person that 'sold' the property to her actually owns the property?

With the situation that you describe: the physical condition of the house, the legal standing of the house and the financial condition in which she finds herself now, she needs to seriously consider terminating the contract for deed in the bankruptcy. Obviously I do not have all the facts, but she needs to consult with an attorney regarding her ENTIRE situation.