It is common for chapter 7 debtors to co-own property with a spouse, family member, friend, business associate, etc.. If the chapter 7 debtor’s interest in the property is not exempt then the chapter 7 trustee may seek to liquidate the chapter 7 debtor’s interest in the asset by selling it. A common purchaser for such property would be a co-owner but that would not have to be the case. Also, pursuant to 11 USC 363(h), the trustee may sell both the bankruptcy estate’s interest AND the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by entirety only if:
- partition in kind of such property among the estate and such co-owners is impracticable;
- sale of the estate’s undivided interest in such property would realize significantly less for the estate than the sale of such property free of the interest of such co-owners;
- 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; and
- 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.
A debtor considering chapter 7 will want to consider the impact of the filing on the co-owner if an asset is not exempt. Some co-owners may welcome the filing in an opportunistic way to acquire property on desirable terms. Other co-owners may be disappointed that the identify of the co-owner has changed or that the asset is sold.