Parents Give You A House But Reserve A Life Estate? Don't File Chapter 7 Bankruptcy, If You Do You Could Lose Your Future Interest

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Sep 07, 2013

A U.S. Bankruptcy Judge ruled that a chapter 7 bankruptcy trustee could sell a "remainder" interest in a man's homestead. What? The case is In re Brunson, Bankr. Court, W.D. Texas 2013.

Well, an elderly man gave his house to his son, but kept a "life estate," i.e. he kept the right to live in the house for his life. This means that the son didn't get the house until after his dad passed away. Dad let him live there anyway. The son filed bankruptcy, and claimed the home as his exempt homestead.

When the chapter 7 liquidation trustee objected to the exemption, the bankruptcy court ruled that the "future interest" could not be claimed as exempt, and the trustee could sell it for the benefit of the creditors.

The case has a very interesting discussion of Texas homestead law, and how this issue has been addressed in other cases. Apparently had there been a lease of the property between the son and the father, and if the father had not claimed the property as his homestead, as happened in this case, the result would have been different.

Nevertheless, people considering bankruptcy and their lawyers should keep this case in mind, and not put themselves into the position of losing a remainder interest in a home to a bankruptcy trustee.

 

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