Bankruptcy: What happens if we are on the title to our parents’ home so that they can avoid probate?

Worst case scenario:  Mom and Dad have to sell their home or take out a huge HELOC (Home Equity Line of Credit) to pay off your bankruptcy trustee.  co title home

Best case scenario:  The bankruptcy trustee acknowledges that you are not owners, never contributed to the mortgage or property tax payments, and lets it slide.

On the day you file bankruptcy, your bankruptcy estate is created.  The estate is comprised of everything you own, your cars, your home, your bank accounts, etc.  The bankruptcy trustee looks at the value of your bankruptcy estate, minus any exemptions claimed, and determines whether or not he can sell off anything to pay some return to your creditors.

If your parents have put you on the title to their home to “avoid probate,” then you are now partial owners of the home.  You may own 50% of the home (depending on how they structured it).  If you are the 50% owner of a home with equity, this is equity the bankruptcy trustee might want to sell off and use to pay your creditors.

Hopefully, you can explain that you were never really an owner of the home and have no real equity in the property, but it’s a tough argument.  Even better, if the home is mortgaged to the hilt, then there’s no equity, and it’s a non-issue.

Unfortunately, if the trustee finds that you do have equity in the home, he can demand that you pay the equity to him. If you cannot, he can sell the home, give your parents their half of the equity, and use the other half for creditors.

And no, it’s not safe just to quit-claim your interest back to Mom and Dad right before you file.  That is even worse!  Talk to a bankruptcy attorney before you do anything here.