Legal Question in Bankruptcy in Illinois

Re: Joint Ownership of home & Student Loan

I've read most of the comments made by my colleague, and I agree with the vast majority of his comments. I don't know what geographical area in which you live, but if you don't have a referral to a lawyer who practices bankruptcy law with more than a little regularity, I would refer you to your local bar association for such a referral. As you might conclude from the previous comments, this is a complicated area of the law.

Re: Joint Ownership of home & Student Loan

Hi. This is not allowed to be more than 300 characters, so I'll try to send it to you in 2-3 parts.

1. As to your home being kept through a bankruptcy from being sold by a trustee (NOTE: EVEN IF IT CAN BE KEPT FROM BEING ADMINISTERED BY THE TRUSTEE, IT WON'T BE KEPT FROM YOUR MORTGAGEE IF YOU DON'T KEEP CURRENT ON YOUR MORTGAGE PAYMENTS; ALL THAT'S WIPED OUT BY THE BANKRUPTCY IS YOUR PERSONAL LIABILITY TO THE MORTGAGEE, NOT THE MORTGAGEE'S CLAIM AGAINST THE COLLATERAL - AND IF THE MORTGAGEE MAKES YOU SIGN A REAFFIRMATION AGREEMENT, EVEN YOUR PERSONAL LIABILITY TO THE MORTGAGEEE WON'T BE DISCHARGED BY THE BANKRUPTCY), this really depends on the facts as to (a) value of house, (b) amount of mortgage, (c) amount of liens on your interest, (d) amount of homestead exemption allowed in your state, and (e) other factors. You see 11 U.S.C. Section 363(h) does allow the trustee to sell your husband's non-debtor interest (which I presume is as a tenant by the entireties or joint tenant with you) as well as your interest in the house, only in the limited circumstances set forth at 11 U.S.C. Section 363(h), which

requires a full adversary proceeding, commenced by complaint served by first class postage prepaid mail on you, and if you have an attorney, your attorney. Before we look at these criteria, let's try to look at some examples when the criteria probably wouldn't even come into play, because the trustee wouldn't even try to invoke Section 363(h), so the Court woudn't even be considering whether the criteria are satisfied. Let's suppose your house is worth $100,000, the mortgage is $90,000, you have no other liens against your interest, and the ILL homestead exemption is $10,000. (I am a New York attorney/trustee, so don't know the ILL homestead exemption by heart). Here, the trustee wouldn't even think of trying to sell your house under Section 363(h): this is because there's only $20,000 of equity in your house after subtracting the mortgage; and your homoestead exemption eats up the equity. PLEASE NOTE: the trustee would (should) never sell your house, just to pay off the mortgagee. As we said above, the mortgagee's claim against the collateral survives the bankruptcy, and the trustee's job is to raise money for unsecured creditors. So here, there's no issue re 363(h). (NOTE; WHEN WE LOOK AT VALUE OF HOUSE, WE USUALLY THINK IN CHAPTER 7 CONTEXT, WHEN WE DO APPRAISALS OF LIQUIDATION VALUE, WHICH IS SOMETHING KIND OF LIKE GARAGE SALE VALUE, NOT FAIR MARKET VALUE. NOW, THIS IS NOT TOSAY THAT THE TRUSTEE CAN'T TRY TO GET FAIR MARKET VALUE ULTIMATELY, IF IT COMES DOWN TO THE TRUSTEE WILL TRY TO SELL THE HOUSE; BUT WHEN THE TRUSTEE DOES THE INITIAL ANALYSIS, WILL GENERALLY LOOK TO LIQUIDATION VALUE, SO WHEN YOU FILE, GET A LIQUIDATION ANALYSIS OR AT LEAST LIQUIDATION BROKER'S OPINION, TO GIVE THE TRUSTEE AT SECTION 341 EXAMINATION.)

Re: Joint Ownership of home & Student Loan

From Neil Ackerman: second part: Okay, change the facts a little: house is worth $150,000, mortgage is $50,000, no other liens against your interest, and same $10,000 exemption available to you under applicable state law. Here, the trustee might THREATEN to invoke Section 363(h), unless trustee gets an offer for your interest in the house which is acceptable to him and which the trustee then has approved by order of the Court, after notice to creditors and a hearing, if necessary. Why? Well, the total equity in the house is $100,000; question then is what is your share of the equity and what is your husband's. Some Courts, to figure this out, just divide by 2, and say you have $50k each; some use actuarial analysis (it's used in my District, under an opinion in a case called Levenhar), under which wife always has greater share of the value of the whole house, if husband and wirfe are of comparable ages and health, etc. But no matter what, there's at least, theoretically, $40k of equity there for the trustee. Now, unless the trustee gets an offer which he/she considers fair for that equity, the trustee will probably seek to invoke Section 363(h). What's a fair offer? As you may imagine, this differs from trustee to trustee, but let's presume that no trustee I've ever heard of, unless there's a grudge going on, would reject 50% of that amount, and most trustees would take $14k-$15k, definitely, even if it's paid over a period of time. I am thought of as being a very agressive trustee, and in fact was the first trustee in the country who was authorized to sell under Section 363(h), where I didn't get a fair offer. (There was $180 of equity showing in the debtor, and they offered me $10,000. How could I accept that? They should have known the Court would let me sell the house, given those4 types of numbers. BUT NOTE: I NEVER WANTED TO SELL THE HOUSE, AND I WOULD HAVE TAKEN A $75K OFFER RIGHT OFF THE BAT, IF THEY WOULD HAVE OFFERED THAT - AND ULTIMATELY, WHEN I WON AFTER A WHOLE ADVERSARY PROCEEDING AND MY FEES WERE NOW HUGE, I STILL ACCEPTED OFFER OF $150K, AND THIS WAS APPROVED BY THE COURT. I DON'T WANT TO SELL A HOUSE, I JUST WANT TO GET FAIR VALUE FROM AN ASSET TO GIVE TO MY CREDITORS.)

Re: Joint Ownership of home & Student Loan

From Neil Ackerman, third part of answer: As to factors in 363(h), the Section 363(h) sale will be allowed ONLY if (1) partition in kind of such property among the bankruptcy estate and the co-owner is impracticable (easily fulfilled if you both live in a one-family house); (2) sale of the bankruptcy estate's undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners (easily fulfilled - you can't ever get as much selling one person's interest subject to another's to live there, etc. as you can if you sell the whole house); (3)the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners (this is the section that's fought over); and (4) such property is not used in the production, transmission,

or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power (obviously not a factor in re houses). Note: even if Section 363(h) sale is approved, the co-owner still has rights under Code Section 363(i) to purchase such property at the price at which such sale is to be consummated.

Re: Joint Ownership of home & Student Loan

From Neil Ackerman, last part of answer: Now, all of the above probably got real confusing, right after I started reviewing the language of Section 363(h) with you (and I didn't even review the whole issue of Section 363[j], which makes things more confusing to a layperson.) Just remember these things: (a) talk this over with your attorney, (b) don't just think from this that the house is in danger of being sold; most houses are not in these circumstances, unless the interest of the person who goes into bankruptcy looks to be at least $40k or more, and there's no offer made that's deemed by the trustee to be fair for this value - and this offer is almost never even required to be 1/2 of the equity which is showing (which is why chapter 13 should be avoided if this is the only asset your'e scared of losing; in a 13, youi'd have to pay creditors on the 100% basis); and if there is a fair offer, the house should be left alone by the trustee, even if there's a lot of equity. BUT NO MATTER WHAT, PAY YOUR MORTGAGEE(S). If you are behind with your mortgagee and can't work a deal with it to catch up, look into chapter 13, rather than 7, since only in 13 can you force a mortgagee to take a cure of arrearages and to reinstate your mortgage, even if it doesn't want to work with you re a cure.

2. Re the student loan issue: it may be sufficient. Judges differ on the hardship thing. By the way, the deferment issue is no longer important. It used to be, because bankruptcy used to wipe out student loans which had been fully due for more than 5, then 7, years, even without proving hardship. Now all federally insured student loans survive, unless hardship is proven. And some Judges require real hardship that you wouldn't believe, while other Judges are more lax on this. TALK TO A GOOD LOCAL BANKRUPTCY ATTORNEY, WHO CAN TELL YOU WHAT TO EXPECT FROM YOUR LOCAL BANKRUPTCY JUDGES!

Good luck!

Neil Ackerman 516-228-8245