When people typically ask this question what they are really asking is: Can I file a chapter 7 bankruptcy case and wipe out all of my credit card/medical debt? After all, chapter 7 is the bankruptcy that allows you to have your cake and eat it too as they say. As in, wipe out all your unsecured debt and keep your stuff.
So, what’s the answer? Well, it depends. Do you have a bunch of equity in your house? These days the answer is typically “no.” If your house is “upside-down” and you have no other major assets, then you have nothing else to worry about. No need to keep reading.
But, if that is not the case, and your home does in fact have a substantial amount of equity, then the next question to ask yourself, are you married or single? If you are single, then regretfully your only option may be a chapter 13 bankruptcy. To read more about the dilemma of single people filing for bankruptcy when your home has a lot of equity, please see my other blog article titled Will I lose my House if I File for Bankruptcy?
If you are married, then the next question that you need to know the answer to is whether you own the house together with your spouse? If the house is in fact jointly owned, then you want to examine the deed to your home. The language in the deed will make all the difference in the world. In Virginia, when a husband and wife buy a home together they can title the property in one of three ways: Joint Tenants with rights of survivorship, Tenants in Common, or Tenants by the Entirety with rights of survivorship. I won’t bother putting you to sleep with the legal distinctions between each title, but hopefully when you examine your deed you will note that it says Tenants by the Entirety. If so, then great. By the way, fortunately, when married couples purchase homes in Virginia at closing the deed is almost always titled in this fashion by default.
So that leaves you with one last question: Other than the mortgage which might have been taken out by both spouses, or possibly the car loan that could be in both names, is the unsecured debt (that would be your credit cards, medical debt, personal business guarantees, etc.) in both names or in your own individual name? Hopefully, it is the latter. As in, each spouse has his/her own debt separate and apart from the other. If so, then fantastic; the equity in the home is fully protected regardless of amount. Whether only one of the spouses decide to file for bankruptcy alone, or if they choose to file for bankruptcy together they can safely file a chapter 7 bankruptcy and not have to worry about losing their home to the chapter 7 trustee. The home is exempted and protected.
So what is the lesson here? Yes, I am going to repeat myself since it is worth repeating. If a married couple is going to purchase a home in Virginia, be absolutely certain that the deed to the home is titled as Tenants by the Entireties and during the course of the marriage be absolutely sure to never, ever take out any joint loans or credit cards. And what about those couples who at the time getting married already own a property in their own individual name? I suggest you do what I did and that is give your new “honey” a great wedding gift by adding their name to the deed and ensuring that it is titled Tennants by the Entirety. After all, as they say, you hope for the best, but want to be prepared for the worst!
If we meet the criteria above of no credit cards or bank accounts in both names, and both spouses have the $30,000 each in debt and there is 1200,000 in equity, but the home was owned by one spouse prior to marriage (8 years ago) and is still in the name of that spouse (although there was a parental co-signer on the property), and was never changed, so no official kind of “Tenancy” claimed on the marriage/deed, could we fall under this umbrella? Or is it possbile to get it changed to tenant in Entirety? Would we have to wait a time period after this to file?
Once again your blog is the best. As a Divorce Mediator in Fairfax, I need to keep up with basic law and trends in bankruptcy and debt relief. When doing research for my clients, I can usually count on The Law Firm of Robert S. Brant to have a great article to pass along to my divorce mediaiton clients. This particular one, about the importance of knowing how your marital home is titled (check your deed!) and the potential impact of that titling choice, gets right to the point. Thanks, Robert, for your easy-to-read blog posts on topics of great concern to many of us out there trying to help people get by in this crazy financial mess we are all in.