In this article, we’ll discuss the important topic of: “Can I Sell My House While in Chapter 13?”
Can I sell my properties to get an early discharge from bankruptcy? These questions can be answered with a simple yes. When we discuss chapter 13 bankruptcy, we come across various advantages and disadvantages as it gives the debtors another opportunity to come out of bad debts. It provides the debtors an agreeable period of 3-5 years of repayment. But for some, this can be a long term commitment. What if someone wants to make other financial decisions during this period, like selling your house or buying a new property?
In this article, we will talk about the opportunities for selling a house during chapter 13 bankruptcy.
Can I Sell My House While in Chapter 13?
Yes, you can. However, the approval of selling of the property depends independently on the bankruptcy court. The reason being, when you submit a case of bankruptcy in court, all your properties then come under the orders of the bankruptcy court. When you decide on a listing agreement with a real estate agent, your contract can mention the bankruptcy court’s approval for sale to happen. If there are any proceedings that you are eligible to receive, the trustees will give you.
So, to sum up, yes, you can sell your house during Chapter 13 bankruptcy with the help of your lawyer. You must be extra cautious before taking any step that may go against you during the sale and ensure that the court approves the deal.
Procedure to Sell Your House
There are a few simple steps that involve selling your home during chapter 13 bankruptcy. Inform everyone involved early. No matter in which state of chapter 13 bankruptcy you are in, either it is right in the middle of the repayment plan or already towards the end, you need to inform your attorney immediately once you decide to sell your house. Your lawyer will need time to notify the bankruptcy court and gather numerous paperwork and approvals required.
You must also inform your real estate agent and the buyer about chapter 23 bankruptcy, as most people tend to avoid such houses under bankruptcy. Lawyers usually take 30-45 days to come in terms of negotiation with the creditors and trustees.
Motion to Sell
This is a critical piece of paperwork that is essential if you sell your house in chapter 13 bankruptcy. This documentation has all the details of your home, i.e., the house’s selling price, the house’s net worth and appraisal of the house to validate the net worth, and a suggested proposal of the distribution of amount after the sale. Once the trustees approve this document, you can sell the house.
Statement of Sale
Towards the end of the sale, you will have to provide the lawyer with a copy of this sale statement. This document contains the house’s final price, deductions, the equity left behind, and the amount recovered from the sale. You will have to make a few payments that the trustees have ordered at the motion to sell.
Discharge of Debt
If this sell can pay off most of your debts, you will likely get discharged from chapter 13 bankruptcy soon after. The bankruptcy court will sign the discharge form provided by trustees and will hand over this final document. This will indicate that you are free of bankruptcy.
Chapter 13 And Home Equity
Home equity is the balance of the home’s current value minus the mortgage loan or other debts. It is also that part of your property that genuinely belongs to you. If the mortgage value is higher than your current home price, then you do not have equity on your property.
Now, how is home equity related to chapter 13 bankruptcy? In chapter 13 bankruptcy, you can safeguard your home equity if it is higher than your homestead exemption. Chapter 13 is an easy adjustable debt repayment method; it tends to protect home equity than Chapter 7 better.
When you file for bankruptcy under chapter 13, you will have to accommodate the creditor’s best interest. And to do so, you will have to pay the unsecured creditors the minimum amount they would have received if there was a chapter 7 bankruptcy case filed. The reason being, if this were a case of chapter 7 bankruptcy, the trustees would have sold your house along with your nonexempt equity to pay to your creditors. And thus to keep your home, you must pay an amount similar to that.
In general scenarios, a debtor files a case of chapter 13 bankruptcy when he wishes to keep his house and not sell it. However, the law does allow you to do otherwise.
So, Can I Sell My House While in Chapter 13?
Chapter 13 bankruptcy is usually preferred over chapter 7 as it is a consumer favoring repayment plan. In case of both selling and keeping the properties, chapter 13 bankruptcy gives your multiple options. All you need to do is consult a reasonable bankruptcy attorney and decide on the process of discharge.