When you file for bankruptcy, you must list all of your real estate and the legal interest you have in each piece of this property. Although most people own their property outright (called fee simple), there are other ways to own property. Here’s a primer on the most common types of property ownership.
(You must list your legal interest in real property on Schedule A of the official bankruptcy forms. To learn more about that form, see Completing Schedule A – Real Property.)
- Fee simple. This is the most common type of interest. It is outright ownership. Even if you still owe money on your mortgage, as long as you have the right to sell the house, leave it to your heirs, and make alterations, your ownership is fee simple. A fee simple interest may be owned by one person or by several people jointly. Normally, when people are listed on a deed as the owners—even if they own the property as joint tenants, tenants in common, or tenants by the entirety—the ownership interest is in fee simple.
- Life estate. This is the right to possess and use property only during your lifetime. You can’t sell the property, give it away, or leave it to someone when you die. Instead, when you die, the property passes to whomever was named in the instrument (trust, deed, or will) that created your life estate. This type of ownership is usually created when the sole owner of a piece of real estate wants a surviving spouse to live on the property for the rest of his or her life, but then have the property pass to the owner’s children. In this situation, the surviving spouse has a life estate. Surviving spouses who are beneficiaries of AB, spousal, or marital bypass trusts have life estates.
- Future interest. This is your right to own property sometime in the future. A common future interest is owned by a person who—under the terms of a deed or irrevocable trust—will inherit the property when its current possessor dies. Simply being named in a will or revocable living trust doesn’t create a future interest, because the person who signed the deed or trust can amend the document to cut you out.
- Contingent interest. This ownership interest doesn’t come into existence unless one or more conditions are fulfilled. Wills sometimes leave property to people under certain conditions. If the conditions aren’t met, the property passes to someone else. For instance, Emma’s will leaves her house to John provided that he takes care of her until her death. If John doesn’t care for Emma, the house passes to Emma’s daughter Jane. Both John and Jane have contingent interests in Emma’s home.
- Lienholder. If you are the holder of a mortgage, deed of trust, judgment lien, or mechanic’s lien on real estate, you have an ownership interest in the real estate.
- Easement holder. If you are the holder of a right to travel on or otherwise use property owned by someone else, you have an easement.
- Power of appointment. If you have a legal right, given to you in a will or transfer of property, to sell a specified piece of someone’s property, that’s called a power of appointment and should be listed.
- Beneficial ownership under a real estate contract. This is the right to own property by virtue of having signed a binding real estate contract. Even though the buyer doesn’t yet own the property, the buyer does have a “beneficial interest”—that is, the right to own the property once the formalities are completed. For example, property buyers have a beneficial ownership interest in property while the escrow is pending.
Want to learn more? Check out our bankruptcy resource center.