Q. My ex-husband just finished buying me out of our house and he filed for bankruptcy. Once I got the buyout money, I made an offer on a house which was accepted. I need to put down the $100,000 he gave me last month. Someone told me that I can’t spend it because any payments he made in the month before filing for bankruptcy will be reversed and that he can then discharge the property division from our divorce in his bankruptcy.
I am also worried because I declared my alimony as income on my mortgage application. I don’t think I will qualify for the mortgage without the alimony. Can he discharge his alimony obligation too? Should I back out of my house purchase?
A. You don’t need to panic or back out of your house purchase.
Most agreements which require buyouts of homes over time are structured so that in exchange for a final payment, he would receive a deed in his sole name to your former home. Sometimes deeds are signed up front and held “in escrow” by the lawyers until the final payment then given to the party buying out the other then released for recording. Assuming that is what happened, the bankruptcy trustee will not claw back the $100,000 he paid you because it was a valid purchase for value. In other words, he paid $100,000 to now own $100,000 in equity in his home and the home is now in his sole name. This is one of the exceptions to what gets clawed back in bankruptcy.
If he owes you any other payments on account of asset division, he can probably discharge that in bankruptcy however so hopefully the $100,000 was the last of the asset division.
Looking forward, he will be allowed to continue making his alimony payments. Indeed, depending on what chapter he files for bankruptcy under, he may be required to continue to pay alimony as part of his bankruptcy agreement. Alimony is considered a domestic support order which has a priority claim in bankruptcy (meaning you would get paid if he owed arrears before some other creditors) and is also not dischargeable.
So, you can be glad his problems are no longer yours and enjoy your new home.
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