Property and possessions that you have a shared interest in can be the kind you don’t think of as yours for bankruptcy purposes.
Our last blog post a couple days ago was about a special kind of asset—property received by inheritance. Today is about another, maybe more common kind of asset that can slip under your radar, those you own with someone else.
Assets in Bankruptcy
Consumer bankruptcy gives you a fresh financial start. Under Chapter 7 “straight bankruptcy” this is done by discharging (legally writing off) all of most of your debts. Under Chapter 13 “adjustment of debts” this is mostly done by greatly reducing how much you pay on your debts.
Your assets come into play in getting you that fresh start. In most cases you don’t have to give up any of your assets. That’s because for most people everything they own is protected in various ways, mostly by being “exempt,” legally beyond the reach of creditors. But sometimes getting to that point can be a lot more involved than may at first appear.
When you file bankruptcy, everything you own at that time comes under the jurisdiction of the bankruptcy court. This includes not just all your tangible, physical stuff, but absolutely all your “legal or equitable interests” in property. That includes property that you share ownership in, including ones you may not think of as yours.
Do You Have Any Shared Assets?
Most people don’t have any shared assets, other than those they own with their spouse. If you are not married, you may very well not have any shared assets. And if you are married, most likely you would be filing a bankruptcy with your spouse. So assets you share with your spouse would not likely be an issue.
But if you do share in the ownership of some asset with other than your spouse, it may well be the kind of property or possession you wouldn’t think about when making a list of what you own. You may not have possession of it. You may not have any practical control over it—you may never have had possession or control over it. So it may not come to mind as something that belongs to you. It may not be tangible, something you can physically see. So you may not even think of it as being an asset at all, much less one that is partially yours.
To help make sense of this, here are some examples.
Jointly Held Assets, or Assets Held in Common
Consider a vacation home that’s been in your parent’s family for a generation or two. Assume that your parents have legally handed it down to you and your siblings. So it’s held jointly or in common (depending on how it was deeded to you and your siblings). Your parents may still think of it and act as if it was theirs even though they legally gifted it to the next generation a while ago. You may not even know that you are legally a part owner of the place.
One of your siblings may manage the financial details of the property so you don’t consider it as partly yours. You may not have been able to contribute financially to its upkeep for years. You and your siblings may even informally assume that whatever legal interest you may have had earlier is gone. You may even genuinely not know if you do have any rights in the property and, if so, exactly what those rights would be, or what they would be worth. And honestly, you may rather not even think about the situation. So you put it out of your mind and don’t mention it to your bankruptcy lawyer.
Marital Assets When You File without Your Spouse
Spouses usually file bankruptcy together but not always. It can make sense for only one to do so. In those situations it’s often not easy to determine one spouse share of the jointly owned assets. Coming up with values for your share of them can be challenging. This is especially so when that property is owned jointly with each spouse having a right of survivorship, or if you live in a community property state.
This alone could easily be the topic for an entire blog post. For now, if you are considering filing bankruptcy without your spouse thoroughly discuss its potential effects on your marital assets with your lawyer.
Shared Business Interests
If you’ve owned any kind of business involving someone else, be aware of your ownership share in that business. Of course in most cases it would be a prime topic to discuss with your lawyer. But there are less obvious situations, such as if you were only passively involved. Consider all possible past business and investment involvements.
Jointly Held Claims
Consider a claim you may hold against someone for injuring you or your property, in which one or more other people share that claim along with you. Consider vehicle accidents involving multiple parties. Or, are you in a class action lawsuit for potential injuries from a defective drug? If you are not actively involved in the lawsuit you may not think of your claim as an asset.
The important thing to keep in mind about shared assets is to tell your lawyer about them. In most situations, assets can be protected in bankruptcy, but only if your lawyer knows about them.