Imagine siblings Eli and Peyton Manning, Serena and Venus Williams or the Property Brothers-Drew and Jonathan Scott fighting over property division. It is hard to imagine these celebrities fighting, but for others, it does happen. It is conflict that involves more than sibling rivalry, beyond teasing, or competition. These conflicts are fraught with ugliness when siblings are co-owners of property. In fact, often, when filing a bankruptcy case, debtors hold undivided interests in real property as a tenant in common, joint tenant, or tenant by the entirety. These interests need to be addressed as possibly having significant value for the estate. Co-owners may be reluctant and unwilling to cooperate to allow the liquidation of value for the benefit of the debtor and creditors. Many times, the parties have been fighting and litigating over the property for some time. Major conflicts arise where one side wants to retain the interest and refuses any buyout. In some instances, one of the co-owners may be residing in the property and may not be paying the liens and taxes.
The undivided property may involve spouses, ex-spouses, or ex-business partners. However, this article will focus on sibling ownership. In these situations, the Bankruptcy Code contains a powerful remedy to resolve the dispute once and for all: Section 363(h):
“(h)Notwithstanding subsection (f) of this section, the trustee may sell both the estate’s interest, under subsection (b) or (c) of this section, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if—
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate’s undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and
(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.”
And Section 363(i) provides backup protection for the co-owner as follows:
“(i) Before the consummation of a sale of property to which subsection (g) or (h) of this section applies, or of property of the estate that was community property of the debtor and the debtor’s spouse immediately before the commencement of the case, the debtor’s spouse, or a co-owner of such property, as the case may be, may purchase such property at the price at which such sale is to be consummated.”
An interesting example of a partition in a chapter 13 case is In re: Belyea 253 BR 312 (Bankr D. N.H. 1999). Pursuant to a Chapter 13 plan, the Debtor proposed to partition real estate owned with his sister under Section 363(h) and Section 1303. The real estate was inherited from their mother. It involved 2 separate non-contiguous parcels, one vacant and one with a residence. The Debtor held a 1/3 interest and the sister 2/3 interest in both parcels. The IRS held a secured claim against the Debtor’s interest. The Court had to decide:
- Whether the Court had authority under Section 363(h) to partition the interests?
- If it had authority, was application of Section 363(h) appropriate in this case?
- Whether the Debtor may partition the interests through a Chapter 13 plan or must it be initiated by an adversary proceeding?
The Court held in the affirmative for the Debtor on all questions:
“Pursuant to 11 USC Section 363(h) and Section 1303 the Court holds that, under the particular facts of this case, the Debtor may partition property owned jointly with his sister through confirmation of his Chapter 13 plan.”
However, another court in a more recent case found that a debtor’s right to exercise the powers of a trustee under Section 1303 was limited, and did not extend to Section 363(h). See In re: Andrade 520 BR 121 (Bankr. D. Mass 2017). In this case, the Debtor filed a Chapter 13 petition identifying an asset in an undivided interest as a tenant in common in real estate along with her sister and brother. The real estate was inherited several years earlier after the death of their father. The Debtor filed an Adversary Complaint seeking authority to sell her interest and the co-owner’s interest. The Court dismissed the Complaint holding the Debtor lacked standing to bring a Section 363(h) action. Only the Trustee had the power to do so.
Nevertheless, an example of sibling rivalry and allowing the debtor’s use of Section 363(h), is found in the case of In re: Guy 587 BR 475 (E.D.N.C. 2018). In this case the Debtor and his sister owned real property as tenants in common inherited from their mother. The real property included a residence, and the sister desired to acquire full ownership of the property. The sister wanted to proceed under state law and filed a Stay Relief Motion to do so. Although the Debtor did not oppose his sister from acquiring the property, he alleged sales through the Bankruptcy Code and Section 363(h) would provide better value to the estate. The Debtor alleged his sister previously had been unwilling to pay him a fair price. In fact, she continually frustrated sales efforts, damaged the property, removed sale signs, and harassed potential buyers. As such, upon filing the bankruptcy, the Debtor believed a sale using Section 363(h) would provide better protection. The Bankruptcy Court agreed, and while denying the sister’s Stay Relief Motion, instructed the Debtor to proceed to sell the property interests under Section 363(h) and if any delay transpired, the Court would entertain a renewed Motion by the sister.
In a Chapter 7 case, In re: Boss 2013 WL 1389759 E.D. Mich April 2-2013. the Trustee sought to sell a Debtor’s interest in real property along with the interests of the on-filing co-owners under Section 363(h). The co-owners were the debtor’s 3 brothers. They had refused to buy the debtor’s interest at what the Court believed was a reasonable price. The issue presented was whether under Michigan law, title held as “joint tenants with full rights of survivorship” was joint tenancy as included under Section 363(h). If it was not, the Trustee could not sell the property. The Court disagreed with the co-owner brothers and found; after reviewing state law, the interest could be sold under Section 363(h). Since all the other Section 363(h) requirements had been met, the Court granted summary judgment to the Trustee.
In the case of In re: Duggan 571 BR 1 (Bankr D. N.H. 2017) the Court found for the Chapter 7 trustee and determined that he was entitled to sell real property that the debtor jointly owned with her two brothers, rather than just debtor’s interest therein. The debtor and her two brothers had inherited the property, and whether one of them (not the debtor) had been residing. The Court stated the benefit to the estate of such sale outweighed the detriment to the non-filing brothers, even though one of them would be required to relocate, and was of limited means to do so. The Court carefully reviewed the proposed calculations of the sale from evidence produced at trial on the Trustee’s Adversary. The Court surmised the sale met the requirements of Section 363(h) and the net distributions were satisfactory to approve such sale.
11 USC Section 363(h) is a powerful tool in the toolbox for trustees, chapter 13 debtors, and bankruptcy attorneys. Prior to filing an adversary or motion, sufficient evidence should be gathered such as current appraisals, lien searches, other claims against the property and as well as any title issues. One should carefully analyze that each of the 4 requirements of Section 363(h) have been met. Further, it is advisable to contact the co-owners in advance and propose a buyout. When communicating with the co-owner(s), also provide notice of the likelihood of moving forward under the Bankruptcy Code should the parties be unable or unwilling to cooperate. Using Section 363(h) in this manner, while not ending sibling rivalry, can bring closure to family property fights.
Printed with permission, NACTT Academy, Considerchapter13.org, February 23, 2025)
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Sibling Rivalry: The Power of 11 USC Section 363(h)
Imagine siblings Eli and Peyton Manning, Serena and Venus Williams or the Property Brothers-Drew and Jonathan Scott fighting over property division. It is hard to imagine these celebrities fighting, but for others, it does happen. It is conflict that involves more than sibling rivalry, beyond teasing, or competition. These conflicts are fraught with ugliness when siblings are co-owners of property. In fact, often, when filing a bankruptcy case, debtors hold undivided interests in real property as a tenant in common, joint tenant, or tenant by the entirety. These interests need to be addressed as possibly having significant value for the estate. Co-owners may be reluctant and unwilling to cooperate to allow the liquidation of value for the benefit of the debtor and creditors. Many times, the parties have been fighting and litigating over the property for some time. Major conflicts arise where one side wants to retain the interest and refuses any buyout. In some instances, one of the co-owners may be residing in the property and may not be paying the liens and taxes.
The undivided property may involve spouses, ex-spouses, or ex-business partners. However, this article will focus on sibling ownership. In these situations, the Bankruptcy Code contains a powerful remedy to resolve the dispute once and for all: Section 363(h):
“(h)Notwithstanding subsection (f) of this section, the trustee may sell both the estate’s interest, under subsection (b) or (c) of this section, and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if—
(1) partition in kind of such property among the estate and such co-owners is impracticable;
(2) sale of the estate’s undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners;
(3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and
(4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power.”
And Section 363(i) provides backup protection for the co-owner as follows:
“(i) Before the consummation of a sale of property to which subsection (g) or (h) of this section applies, or of property of the estate that was community property of the debtor and the debtor’s spouse immediately before the commencement of the case, the debtor’s spouse, or a co-owner of such property, as the case may be, may purchase such property at the price at which such sale is to be consummated.”
An interesting example of a partition in a chapter 13 case is In re: Belyea 253 BR 312 (Bankr D. N.H. 1999). Pursuant to a Chapter 13 plan, the Debtor proposed to partition real estate owned with his sister under Section 363(h) and Section 1303. The real estate was inherited from their mother. It involved 2 separate non-contiguous parcels, one vacant and one with a residence. The Debtor held a 1/3 interest and the sister 2/3 interest in both parcels. The IRS held a secured claim against the Debtor’s interest. The Court had to decide:
The Court held in the affirmative for the Debtor on all questions:
“Pursuant to 11 USC Section 363(h) and Section 1303 the Court holds that, under the particular facts of this case, the Debtor may partition property owned jointly with his sister through confirmation of his Chapter 13 plan.”
However, another court in a more recent case found that a debtor’s right to exercise the powers of a trustee under Section 1303 was limited, and did not extend to Section 363(h). See In re: Andrade 520 BR 121 (Bankr. D. Mass 2017). In this case, the Debtor filed a Chapter 13 petition identifying an asset in an undivided interest as a tenant in common in real estate along with her sister and brother. The real estate was inherited several years earlier after the death of their father. The Debtor filed an Adversary Complaint seeking authority to sell her interest and the co-owner’s interest. The Court dismissed the Complaint holding the Debtor lacked standing to bring a Section 363(h) action. Only the Trustee had the power to do so.
Nevertheless, an example of sibling rivalry and allowing the debtor’s use of Section 363(h), is found in the case of In re: Guy 587 BR 475 (E.D.N.C. 2018). In this case the Debtor and his sister owned real property as tenants in common inherited from their mother. The real property included a residence, and the sister desired to acquire full ownership of the property. The sister wanted to proceed under state law and filed a Stay Relief Motion to do so. Although the Debtor did not oppose his sister from acquiring the property, he alleged sales through the Bankruptcy Code and Section 363(h) would provide better value to the estate. The Debtor alleged his sister previously had been unwilling to pay him a fair price. In fact, she continually frustrated sales efforts, damaged the property, removed sale signs, and harassed potential buyers. As such, upon filing the bankruptcy, the Debtor believed a sale using Section 363(h) would provide better protection. The Bankruptcy Court agreed, and while denying the sister’s Stay Relief Motion, instructed the Debtor to proceed to sell the property interests under Section 363(h) and if any delay transpired, the Court would entertain a renewed Motion by the sister.
In a Chapter 7 case, In re: Boss 2013 WL 1389759 E.D. Mich April 2-2013. the Trustee sought to sell a Debtor’s interest in real property along with the interests of the on-filing co-owners under Section 363(h). The co-owners were the debtor’s 3 brothers. They had refused to buy the debtor’s interest at what the Court believed was a reasonable price. The issue presented was whether under Michigan law, title held as “joint tenants with full rights of survivorship” was joint tenancy as included under Section 363(h). If it was not, the Trustee could not sell the property. The Court disagreed with the co-owner brothers and found; after reviewing state law, the interest could be sold under Section 363(h). Since all the other Section 363(h) requirements had been met, the Court granted summary judgment to the Trustee.
In the case of In re: Duggan 571 BR 1 (Bankr D. N.H. 2017) the Court found for the Chapter 7 trustee and determined that he was entitled to sell real property that the debtor jointly owned with her two brothers, rather than just debtor’s interest therein. The debtor and her two brothers had inherited the property, and whether one of them (not the debtor) had been residing. The Court stated the benefit to the estate of such sale outweighed the detriment to the non-filing brothers, even though one of them would be required to relocate, and was of limited means to do so. The Court carefully reviewed the proposed calculations of the sale from evidence produced at trial on the Trustee’s Adversary. The Court surmised the sale met the requirements of Section 363(h) and the net distributions were satisfactory to approve such sale.
11 USC Section 363(h) is a powerful tool in the toolbox for trustees, chapter 13 debtors, and bankruptcy attorneys. Prior to filing an adversary or motion, sufficient evidence should be gathered such as current appraisals, lien searches, other claims against the property and as well as any title issues. One should carefully analyze that each of the 4 requirements of Section 363(h) have been met. Further, it is advisable to contact the co-owners in advance and propose a buyout. When communicating with the co-owner(s), also provide notice of the likelihood of moving forward under the Bankruptcy Code should the parties be unable or unwilling to cooperate. Using Section 363(h) in this manner, while not ending sibling rivalry, can bring closure to family property fights.
Printed with permission, NACTT Academy, Considerchapter13.org, February 23, 2025)