Bankruptcy – Can I File If I Own a Life Estate?
Anyone who owns a life estate can file bankruptcy. However, there is a risk of losing the ownership of the life estate when you file Chapter 7 if the life estate is worth more than you are allowed to exempt in Georgia. In contrast, you may be able to protect the life estate in a Chapter 13 even if it is worth more than your exemption allows as long as your are paying your unsecured creditors the difference over the life of your plan or if you are in a 100 percent Chapter 13 plan. In order for you know your best option, you should meet with a bankruptcy attorney.
Most cases I have seen in Georgia that involve life estates have something do with family land. In Georgia, family land is more than just an asset. Family land is sacred. No one wants to risk losing it.
I recently met with a client in my Dalton GA office who told me a story about a log cabin that has been in her family since the early 1840s. I will refer to her as Ms. Dalton. This beautiful cabin has been well maintained and has no debt on it. Ms. Dalton has an uncle who currently lives in this cabin. According the will of her mother, the uncle may live in the cabin for the remainder of his life. Upon his death, the cabin reverts to Ms. Dalton.
In the case of Ms. Dalton, the cabin had no mortgage on it. She estimated that it was worth at least $100,000. To make matters worse, her uncle was 80 years old and in bad health. Based on her specific facts, I advised her to stay away from Chapter 7 bankruptcy.
If Ms. Dalton were to file Chapter 7, I think the bankruptcy trustee would have no problem finding a buyer for her life estate. How much would you pay to own her interest? If her uncle was only 20 years old, you probably would not be willing to pay very much. Eighty years old and in bad health? In the case of Ms. Dalton, Chapter 7 was not worth the risk of losing the family land. Its a good thing she was honest and upfront with her bankruptcy attorney about everything.