What Happens When One Joint Tenant Files for Bankruptcy?

Joint tenancy is a common way for two or more people to own real estate together. Married couples, family members, and business partners often choose joint tenancy because it provides equal ownership rights and includes the important feature of survivorship, meaning if one owner dies, their share automatically passes to the other joint tenant(s).

But what happens when one joint tenant faces serious financial trouble and files for bankruptcy?

Bankruptcy introduces legal complications that can disrupt joint ownership, affect property rights, and potentially place the entire property at risk. Even though only one co-owner files, the consequences may extend to everyone who shares ownership.

This article explains what happens when one joint tenant files for bankruptcy, how courts treat jointly owned property, and what non-filing joint tenants should understand.

Understanding Joint Tenancy

Joint tenancy refers to a type of co-ownership where every joint tenant has their own and equal share. Every owner has the right to use the property. The ownership involves a right of survivorship, where other owners automatically inherit the property when one passes away.

The difference between tenants in common and joint tenants is that the joint tenancy arrangement is much different from tenancy in common. Tenancy is common, may include unequal shares, and there’s no rule of survivors taking the other deceased owner’s property.

What Happens in Bankruptcy?

When someone goes bankrupt or files for bankruptcy, all of their assets become part of a legal entity. Thus, it is also called a bankruptcy estate.

In this, a bankruptcy trustee gets appointed. They review assets, determine what can be sold, pay creditors from available property, and protect exemptions allowed by law.

Filing for bankruptcy helps balance debtors' protection while recovering your creditor status.

Does a Joint Tenant’s Interest Become Part of the Bankruptcy Estate?

Yes. When one joint tenant files for bankruptcy, that specific person’s ownership interest in the jointly owned property is transferred to the bankruptcy estate.

This indicates that the debtor’s share is subject to review, the trustee can try to assess its value, and creditors may benefit from it. But the trustee never automatically gets the overall property’s ownership. They can only access the part that the debtor owns. The remaining joint tenants who haven’t filed for bankruptcy have their complete rights.

Can a Trustee Force the Sale of an Entire Property?

It is possible, and it is also one of the greatest concerns in bankruptcy.

According to the US bankruptcy law and principles of other jurisdictions, trustees may have the power and influence to sell jointly owned property. But it depends on certain factors, such as that selling the debtor’s share alone is impractical, selling the entire property is much more profitable to creditors, or the benefits are far higher for the remaining co-owners than the harm.

This generally happens in homes where physical division is impossible.

What Happens to the Right of Survivorship?

Bankruptcy can disrupt the survivorship feature of joint tenancy.

In many cases, filing for bankruptcy may result in a severance of the joint tenancy.

This means the ownership structure may convert into a tenancy in common, removing the automatic survivorship right.

Why?

Because bankruptcy treats the debtor’s share as a transferable asset, and joint tenancy relies on unity of ownership.

If severed:

• The debtor’s share remains part of the estate
• The co-owner no longer automatically inherits the debtor’s portion upon death
• The debtor’s share could pass through bankruptcy proceedings instead

This is a major legal consequence that many joint tenants do not anticipate.

Are There Protections for the Non-Filing Joint Tenant?

Yes, but they are limited.

Courts recognize that forcing a sale can be unfair to innocent co-owners, especially if the property is a primary residence.

Trustees must often show:

• The sale will meaningfully benefit creditors
• The non-filing co-owner will receive fair compensation
• The harm to the co-owner is not excessive

In some cases, courts may deny a forced sale if:

• The co-owner would face extreme hardship
• The debtor’s equity is minimal
• The property is heavily exempt

Still, protection is not guaranteed.

What About Bankruptcy Exemptions?

Bankruptcy law allows debtors to claim exemptions, meaning certain assets may be protected from liquidation.

Common exemptions include:

• Homestead exemptions
• Retirement accounts
• Personal property exemptions

If the debtor’s equity in the jointly owned property falls under an exemption limit, the trustee may not be able to sell the property.

However, Exemptions vary widely by jurisdiction. They may not fully cover the debtor’s share.

The non-filing co-owner cannot claim the debtor’s exemption. So while exemptions can help, they do not eliminate risk.

Conclusion

Navigating bankruptcy filing in a joint tenancy can be complicated. Contact a reputed lawyer to ensure you make the right move and protect your rights.