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Can an appeal be filed in a bankruptcy ruling if you’re an innocent party but hold title to property re: case?

My brother and I inherited property after parents died (at separate times). We have a five year agreement re: settlement of the property which does not end until 2007. We signed this agreement in 7/03, and the docs were also filed the the King County court, loan docs, and title company, etc., and in 2004 my brother filed bankrupcy. The court is forcing me to refinance to buy him out, have a for sale sign on my property no to mention an interested buyer and contract for the sale of my property. Yet in still the Trustee for the bankrupcy case has raised my cash-out amount ($150,000 prior to property being listed) and three times (from $170,000 to now 205,000), since the listing. My pro-bono attorney has responded by deadline and we go to court on Sept 1. I have found a loan, but my questions is: Is this legal, will the Trustee have to accept my cash-out payment, and can they sale my home out from under me?

It is a pity that you did not both inherit the property in trust in such a fashion (perhaps a discretionary trust) that would have kept it effectively outside your brother’s bankruptcy estate.

Here’s what the NCLC Guide, 5th ed., says at § 2.5.3:

“Significantissues may arise when two or more people jointly own property and only one of theco-owners files a bankruptcy case. Although the debtor’s partial interest in the property clearly comes into the estate, the [Bankruptcy] code mandates some protection of the interests of the non-debtor co-owner. [fn56].

[fn56] 11 U.S.C. § 363(h). _See_ In re Persky, 893 F.2d 15 (2d Cir. 1989) (although state law allows execution on one spouse’s interest in tenancy by the entireties, bankruptcy court must evaluate detriment of sale to nondebtor spouse under § 363(h)(3)); In re Nelson, 129 B.R. 427 (Bankr. W.D. Pa. 1991) (jointly owned property could not be sold under § 363(h) when co-owning non-debtor spouse had occupancy rights for the duration of her life). On remand, the bankruptcy court in In re Persky, 134 B.R. 81 ()Bankr. E.D.N.Y. 1991) held that retroactive application of § 363(h) to sell the interest of a nondebtor spouse who was not involved in any debtor-creditor relationship would violate the takings clause of the Fifth Amendment to the Constitution because it was not a public use that would justify a taking. _See also_ In re Lyons, 995 F.2d 923 (9th Cir. 1993) (proceeding by trustee seeking authority to sell property pursuant to § 363(h) must be adversary proceeding and not a motion).”

Thus the Court could order the sale of the whole of the property, and the apportionment of the costs of sale. Normally the trustee will agree to a buyout by the innocent, non-debtor co-owner for less than half the market value of the property since sale by auction or otherwise is a costly nuisance.

The trustee cannot establish the buy-out value; s/he can only recommend a value — following valuation by appraiser(s) — to the court for approval.

If the court has ordered the sale of the property, you can appeal to the BAP (bankruptcy appellate panel), to the U.S. District Court, and to the Circuit Court of Appeals in due course.

An issue potentially relevant is the nature of your settlement agreement. If and only if it was an arms-length agreement for value, since it was properly recorded with the county clerk in 2002 and the bankruptcy case is recent, it is binding on the trustee. (There are special rules for “fraudulent transfers”: under the Bankruptcy Code there is a 2-year lookback; under state law there is at least a 4-year lookback in which such an agreement can be annulled as in “fraud of creditors”. But I don’t see that as applicable here.)

Those are the general rules. You are lucky to have found a pro bono attorney, and I hope he or she is able to explain things to your satisfaction. The main issue would seem to be valuation, and that is something that can be disputed. But be careful: opening the issue could mean that the value turns out to be higher (or lower) than the trustee has proposed. (Your statement of the forced sale and cash-out amount is confused, and I don’t understand what is the court-order and what is the trustee’s proposal.

If I knew the court’s location (isn’t King County Seattle?) docket number of the case I could perhaps read all the documents on PACER.