Bankruptcy Law/chapter 7 and equity line with co borrower
QUESTION: my husbands and his brother bought a house together... his brother put a bunch of money on an equity line which they both are on then the house was refinanced and his brother's name was taken off the 1st but kept in the 2nd now his brother is filing chapter 7 we believe the house is worth a little more than the 1st, can his name be removed form the 2nd and my husband stuck with the debt?
ANSWER: I don't understand the facts here. When the house was refinanced, it sounds like the new first was just in your husband's name, however the existing second at that time either had to be paid off (probably with the new loan) or a formal subordination agreement made with the bank, which is rare. I'm not sure how the first could be refinanced and the joint second remain on record -- are you sure it wasn't rolled into the new first?
That said there is no way to remove someone's name from a debt unless the debt is formally assumed by a third party or it is paid off.
Let me know how it is that the first was refinanced but the second was not. The debt follows the property regardless of who files bankruptcy.
---------- FOLLOW-UP ----------
QUESTION: the subordination agreement was made and the first was put in mine and my husbands name. the second remained under my husbands name and his brother ... his brother who is filing chapter 7 is telling us that the only thing this will do is remove his name from the equity line and leaving it under my husband. is this true? even though the value of the home is a little more than the 1st. and will they do an appraisal of the property to see it that is the case? and is my husband hindered by the equity line being put in the bankruptcy?
OK now I understand. The brother's filing bankruptcy will not remove his name from anything and the second position debt will still be secured by the property. All the bankruptcy does is prevents the lender from suing the brother on the note. It's doubtful anyone will appraise the property -- what is typically done is a "zillow" value obtained (zillow dot com) which you can check yourself if you like. The house would have to have a substantial amount of equity over and above the encumbrances for a trustee to be interested in it.
Now here is a trap you should be aware of. As long as the bankruptcy case stays open, which could be for years (this has nothing to do with the brother's discharge by the way), the house remains property of the estate, such as it is; and let's say it goes up in value in the next 3 yrs while the case is open, the trustee might file a motion to sell the property and scoop up 1/2 of the equity although you've been paying all the bills.
What you should do is hire a local bankruptcy attorney of your own to file a "motion to compel abandonment" of the asset if the bankruptcy case isn't closed within about 3 months of the discharge being entered. As there's minimal equity now, that would likely not be opposed.
Once the case is closed, unless there was a reservation of rights to this asset (which is rare, though possible), then the property is deemed abandoned to all concerned and no need to do anything. But until that happens (the case is closed) the trustee can move to sell it.
You can monitor this bankruptcy case yourself by getting a PACER account -- costs nothing to get the account (go to the bankruptcy court's website for the particulars) and you can then monitor the docket on this case yourself.
Once you log on to pacer, go to "reports" then docket report after you've input the case number, and I suggest having it come up in "most recent first" order. What you're looking for is a trustee's report of no distribution which triggers the case closing.