Legal Question in Bankruptcy in California

Re: partner's bankruptcy problems

Answers to your questions:

"What happens to me and my credit because of her filing bankruptcy?" Your sister's BK should not affect your credit in any way. Your credit history is just that -- yours. It will affect the ability of you and your sister to refinance; and if you plan to purchase property again with her, it will affect that as well. Lenders will undoubtedly charge you and your sister higher interest rates than the non-bankrupt, if you refinance the property or if you choose to be partners again. But as far as your solo activities are concerned (or any other activity not involving your sister, her BK should not affect you at all). There may be certain tax issues to resolve, but you can discuss those with your accountant.

"So if she does file bankruptcy, it would clear her of all her debt and still she'll own 3 Hawaii time shares to use freely again?" No, this is not how it works. BK law is extremely complicated, but in a nutshell, if she were to file a Chapter 7 (liquidation) and if it were granted (the new BK law includes a means test, among other significant changes to the old law), then she would likely avoid her unsecured debt. Most, if not all, real property loans are secured. She cannot simply discharge that debt. She will have a choice -- either affirm the debt (and keep making payments on it), or give up her right to the property (in which case, your loan documents will dictate what happens next -- the bank may have the right to sell off her share or you may have a right to buy it from the bank . . . there are many possible scenarios).

"What does it do to her credit and her ability to get new credit or to buy a home?" Although BK is not the stigma it was 25 years ago, and although it will not preclude her from obtaining credit (the way that a BK did many years ago), she will pay a higher interest rate for most, if not all, loans, than that to be paid by a non-bankrupt.

All in all, if BK can be avoided, it should be avoided. Depending upon the type of BK filed, it can remain on your credit history for 10 years, and in some cases, even longer. It is tougher to get credit and in some cases, to obtain employment and rent property.

Re: partner's bankruptcy problems

The only thing I would add to the information provided by Mr. Guerrini is that there might be enough equity in the 3 timeshares to that the Chapter 7 trustee might consider selling them to pay off some of your sister's creditors. This scenario is unlikely because of your joint ownership interest in the equity. Nonetheless, it is a possibility.