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Last Minute Bankruptcy Filing Imperils Debtor's Homestead

Posted By admin || 26-Jan-2011

In the Chapter 13 bankruptcy filing of a Texas debtor, the bankruptcy judge ruled that it could not determine if the debtor had legal title to their homestead when they filed their bankruptcy petition.

The facts of the case:

The debtor and their spouse defaulted on their mortgage before filing bankruptcy.  Their lender filed a foreclosure against them and scheduled to sale the home at a foreclosure auction on April 6, 2010.  However, the debtor quickly filed bankruptcy on April 7, 2010 but after the home was already sold in foreclosure.  The bankruptcy trustee included the home as part of the estate and placed the lender under the automatic stay.  The lender then filed a motion to for relief from the automatic stay.

Substitute trustee Janae Urbanczyk ("Urbanczyk") then prepared a substitute trustee's deed (the "Trustee Deed") conveying the Property to US Bank, see docket no. 31-1. The Trustee Deed lists the "Deed Date" as April 6, 2010, but Urbanczyk apparently executed the Trustee Deed and had it notarized sometime on April 7, 2010. Also on April 7, at 9:28 P.M., Debtor filed his petition in the above-captioned bankruptcy case (the "Petition"). In the Wells Fargo Brief, Wells Fargo asserts that Urbanczyk delivered the Trustee Deed to Wells Fargo on April 7, but the record contains no evidence indicating at what time delivery occurred, or whether delivery occurred at all on that date. Nor does the Wells Fargo Brief make clear whether delivery, assuming it occurred, was made to the Servicing Agent, US Bank, or both. The Trustee Deed was recorded in the real property records of Tarrant County, Texas, on April 21, 2010.

In their bankruptcy filing the debtor claimed the home which was sold in foreclosure as exempt property.  But the bankruptcy court found that the debtor did not have an equitable interest in the property because it was clearly sold before the debtor filed bankruptcy.  But under the bankruptcy law, property will be part of the bankruptcy estate if the debtor has a "legal or equitable" interest in the property.  Because it is not clear if title was transferred before the bankruptcy filing, the court decided to have a hearing to look at all of the evidence of the case.

The essential issue before the court is whether Debtor held a legal or equitable interest in the Property when Debtor filed the Petition. Under section 541(a)(1) of the Bankruptcy Code, "all legal or equitable interests of the debtor in property as of the commencement of the case" become property of the bankruptcy estate. 11 U.S.C. § 541(a)(1). A voluntary bankruptcy case is commenced under Title 11 by filing the bankruptcy petition. See 11 U.S.C. § 301(a). Any legal or equitable interest held by Debtor in the Property therefore became property of the estate at the moment he filed the Petition.

Because this debtor waited until the very last minute to file bankruptcy it is possible that their home could be loss if it is found that their title was transferred before the bankruptcy filing.

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