Bankruptcy

Will you loose an investment property in a Chapter 7 bankruptcy?

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Before a Debtor files a Chapter 7 bankruptcy, there are certain considerations to take into account. One of the most significant considerations is whether the Debtor will loose any property. The general rule is that no Debtor in a Chapter 7 case should have more then one home with equity. The reasoning behind this is simply that the equity in any investment property should be used to pay back creditors. However, what happens in the situation that a Debtor does not really have a right to property, but rather is on a deed in name only. For example, two people own a property jointly, but only one of them receives any income from the property, pays all the bills and takes care of the property. If this is the situation, the Debtor may be able to save the invest-ment home by claiming that they only have equitable title, or in the alterative that they are a beneficiary of a resulting trust.

The law in Massachusetts can create an interst in property which is called a resulting trust. Such a resulting trust is imposed by law to protect a person who has paid the sale price for prop-erty.

A resulting trust arises when one person pays all or a specific portion of the consideration for a conveyance of property taken in the name of another. Lewis v. Mills, 32 Mass.App.Ct. 660, 593 N.E.2d 1312 (1992).

This type of trust can play a major role when one person, especially a spouce pays for a piece of property and the title is taken in the name of the other, or of both spouses as tenants by the en-tirety, Goldman v. Finkel, 341 Mass. 492, 170 N.E.2d 474 (1960); In such a situation, there is a presumption that a gift was intended, however, a resulting trust may still be proved if there was no intention of making a gift. Krasner v. Krasner, 362 Mass. 186, 285 N.E.2d 398 (1972).

With respect to a bankruptcy proceeding, in order to protect property from the bankrutpcy es-tate, the party claiming all of the premises on a resulting trust must show that he or she contrib-uted all of the consideration for the premises. McDonald v. Conway, 254 Mass. 429, 150 N.E. 200 (1926).

Full post as published by Bankruptcy Articles & Blog on October 12, 2009 (boomark / email).