In many instances, marital couples intertwine their financial affairs. This causes the vast majority of both real and personal property owned by the marital couple to be jointly owned property. This blog will explore the effect that jointly owned property has on a bankruptcy case for purposes of residential real property and jointly owned bank accounts.
SHOULD I FILE A JOINT BANKRUPTCY PROCEEDING?
A married couple has the right to file a joint bankruptcy proceeding under the same case number in a single bankruptcy proceeding. When evaluating whether to file an individual bankruptcy case or a joint bankruptcy proceeding, you should consider if your debt is a joint obligation or if the debt is solely the obligation of one individual. While you may not fully recall whose individual obligation all of your debts are, your attorney can aid in your decision by evaluating your credit report with you to determine the nature of the debts. It is important to consider that if an individual files for bankruptcy and discharges a jointly held debt, then that debt will only be discharged as to the individual filing for bankruptcy. Often, a key consideration in the decision of whether or not to file a joint proceeding is the extent of the debt versus the benefits of having one spouse without a bankruptcy on their credit report. This is a consideration that can be discussed with your bankruptcy attorney at your bankruptcy consultation.
WHAT HAPPENS TO A JOINTLY OWNED RESIDENTIAL REAL PROPERTY IN BANKRUPTCY?
If you jointly own your residential real property with your spouse, you may be wondering what will happen to that residential real property if you file for bankruptcy. In a joint bankruptcy proceeding, you will be able to apply double the permitted individual exemption for residential real property pursuant to 11 U.S.C. § 522(d)(1). As of April 1, 2019, the amount of equity a married couple can exempt in a joint bankruptcy filing for real property that they jointly own together is $50,300.00.
If an individual within a married couple files for bankruptcy and the married couple jointly owns residential real property, then only the spouse’s interest who files for bankruptcy will be property of the bankruptcy estate. Therefore, any available equity in the real property would be split in half prior to administration in the bankruptcy case. The residential real property exemption in individual cases will be $25,150.00 as of April 1, 2019.
A bankruptcy attorney can help you to break down how much equity you have in your residential real property prior to filing the bankruptcy case. However, it is important that you provide your bankruptcy attorney with an accurate home valuation, so your attorney can give you advice based on the best possible information. In a chapter 7 bankruptcy case, the trustee appointed to administer your case is not beholden to the valuation submitted to him or her and is free to determine in his or her business judgment whether there is significant equity in the residential real property to sell it towards satisfaction of creditor claims. Therefore, providing your attorney with a valuation of your residential real property that you know is below the actual market value of the residence could cause the residence to be involuntarily sold by the trustee. While it is more difficult for a trustee to sell a residential real property where a non-filing spouse jointly owns residential real property and does not consent, it can be done pursuant to 11 U.S.C. § 363(h).
WHAT HAPPENS TO JOINTLY OWNED BANK ACCOUNTS WHERE A NON-FILING SPOUSE (OR OTHER INDIVIDUAL) IS A JOINT OWNER OF THE ACCOUNT
If you are considering filing for bankruptcy and you have jointly held accounts, then you may be wondering if the non-filing individual’s money is at risk during the bankruptcy proceeding. In order to determine property rights in a bankruptcy case, you must look to the underlying state law based on the binding United States Supreme Court precedent set in Butner v. United States. Pursuant to N.J.S.A. 17:16I-4, New Jersey State Law provides that “[a] joint account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each to the sums on deposit. In the absence of proof of net contributions, the account belongs in equal shares to all parties having present right of withdrawal.” In laymen’s terms, this means that ownership of a joint bank account is directly tied to how much each individual owner of the bank account deposits into the account. For example, if two individuals have a joint bank account where individual A deposits $100 into the bank account and individual B deposits $150 into the bank account, then individual A owns $100 of the joint bank account and individual B owns $150 of the joint bank account in the State of New Jersey. However, the extent of the contribution of each individual must be able to be proven or else each owner of the joint bank account owns 50% of the total amount in the account. Often, this issue arises when a child is on a joint bank account with their elderly parent where the parent wants the child to have immediate access to their money to the money in the account in the event of an emergency. Therefore, for bankruptcy purposes, it is important to advise your bankruptcy attorney as to whether you can prove whose money was deposited into the bank account. Easy ways to prove who deposited the money into a bank account include sourcing direct deposits from social security, employment or from a pension.
If you are considering filing for bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.