Bankruptcy and Jointly Held Assets: Understanding the Implications and Protections

Introduction:

Bankruptcy can have far-reaching effects on your financial life, especially when it comes to jointly held assets. Jointly owned properties, bank accounts, investments, and other assets can complicate the bankruptcy process, requiring careful consideration and understanding of the associated implications. In this article, we will explore the relationship between bankruptcy and jointly held assets, addressing key concepts, protections, and potential challenges that may arise.

1. Joint Tenancy vs. Tenancy in Common:

Understanding the type of joint ownership is essential when considering bankruptcy. Joint tenancy and tenancy in common are two common forms of joint ownership. Joint tenancy includes the right of survivorship, meaning that if one owner passes away, the surviving owner automatically assumes full ownership. In tenancy in common, each owner possesses a distinct share of the property, which can be passed on to heirs.

2. Bankruptcy Estate and Jointly Held Assets:

When you file for bankruptcy, all of your assets become part of the bankruptcy estate, including jointly held assets. This means that your share of the jointly owned property or asset is subject to the bankruptcy process, potentially affecting both you and the co-owner.

3. Exempting Jointly Held Assets:

Bankruptcy exemptions allow you to protect a certain amount of equity or value in specific assets from being liquidated to repay creditors. The availability of exemptions for jointly held assets can vary depending on state laws and the type of asset. It is important to consult a bankruptcy attorney to determine the exemption limits and strategies for protecting jointly owned assets in your jurisdiction.  In Pennsylvania, Jointly held assets with a spouse are afforded special protection under the tenancy by the entirety exemption.  In general, this property held by spouses together as tenancy by the entirety is exempt against claims by creditors of one or either of the spouses, but not both. 

4. Severance of Joint Tenancy:

In some cases, it may be possible to sever a joint tenancy before filing for bankruptcy. By severing the joint tenancy and converting it into tenancy in common, each co-owner's share of the asset can be treated separately in bankruptcy. However, this process requires careful legal considerations and should be done under the guidance of an attorney.

5. Co-owner's Rights and Interests:

Bankruptcy only affects the debtor's share of jointly held assets. The co-owner's rights and interests in the property generally remain intact. However, the bankruptcy trustee may have the authority to sell the debtor's share, potentially leading to a change in ownership or the need for the co-owner to buy out the debtor's interest.

6. Co-owner Liability for Joint Debts:

If you and the co-owner have joint debts, such as a jointly held credit card, the co-owner may still be responsible for the entire debt even if you file for bankruptcy. Bankruptcy typically eliminates your personal liability, but it does not absolve the co-owner from their obligation to repay the joint debt. This can create challenges and discussions between co-owners regarding the division of debt responsibilities.

7. Co-owner Buyout Options:

In some cases, a co-owner may have the option to buy out the debtor's share of a jointly owned asset before or during bankruptcy. This can allow the co-owner to retain full ownership and avoid the asset being involved in the bankruptcy process. Co-owner buyouts should be carefully structured and documented to comply with bankruptcy laws and regulations.

8. Communication and Cooperation with Co-owners:

Maintaining open lines of communication with co-owners is crucial when dealing with jointly held assets in bankruptcy. Discussing the potential impact of bankruptcy, exploring available options, and coordinating efforts can help protect everyone's interests and ensure a smoother resolution.

9. Consultation with a Bankruptcy Attorney:

Navigating the complexities of bankruptcy and jointly held assets requires the expertise of a qualified bankruptcy attorney. They can provide guidance based on your specific circumstances, help you understand the applicable laws in your jurisdiction, and develop strategies to protect your interests and those of your co-owner