The Debtor has an obligation to pay his debts to the best of his ability during Chapter 13. What happens is when you file the Chapter 13 bankruptcy, you often have less than $28,900 in equity for each person on the deed. Your Chapter 13 repayment plan was based on this.
If you sell the home, you still have a wild card exemption of half of the real estate exemption to protect any assets. If your plan requires that you repay 100% of the claims, then selling the home and financing a new house is probably not a problem.
Non Disclosure of Selling the House in Chapter 13 Bankruptcy
If your plan does not repay 100%, the court, trustee, and your creditors are allowed to object to the sale or purchase of the new home. Worse yet, if you fail to disclose, you may not get to keep the funds from the house sale and may be required to apply the funds to your bankruptcy plan.
Due to the red tape, you may be far better off dismissing your case, & selling your home after the bankruptcy is dismissed, and then purchasing a new home. This way, the sale and purchase do not require court consent.
The Hiring of a Real Estate Broker Requires Court Permission
Your attorney will have to file a motion so you can hire a professional to sell the home. The attorney then has to get court approval to sell the house. After you sell the home, the attorney has to get permission to buy and finance a new home.
In some cases where the sale of the old house and acquisition of the new house are simultaneous transactions, you may be able to file one motion or set of motions to obtain court permission.
If the home’s final sale price is reasonable, then you can expect the appointment of your realtor and approval to sell your home will be a simpler process. But it should be approved without too much of a problem. Motions are typically approved within 20-30 days.
This is a substantial amount of added work for your bankruptcy attorney, but it is his job to do the work as part of any Chapter 13 bankruptcy.
The Sale of the Home Requires Bankruptcy Court Approval and Appropriate Motions
The closing costs of the sale and a substantial amount of other information about the sale agreement are required in the motion to approve a sale. What they pay and whether there will be money left over to fully fund the repayment plan is just some of the information the bankruptcy judge looks at in deciding to approve a sale. The bankruptcy trustee is paid 4.5% of what creditors receive in Western Kentucky, so he will make every effort to make the proceeds part of what creditors obtain.
If you had an inheritance or a lottery winning while in a Chapter 13 bankruptcy, the proceeds would be applied to the plan, so the plan percentage would increase. Bankruptcy has no ability to force a debtor into paying more than 100%.
But if there is an increase in income or assets, that income or property may be applied to the Chapter 13 plan. That is why every year in the Western District of Kentucky, debtors must file a new budget and turn over income tax refunds.
Buying a New Home and Mortgage Payments Require Court Permission
If you are buying a home, the court is primarily concerned with whether the payments with the mortgage lender are affordable. You have to live somewhere. It does not matter whether you rent or buy a home. There will be an expense for housing, and often buying a home is cheaper than renting. The rules in the mortgage industry allow you to buy a house two years after discharge, within about one year after you are confirmed in Chapter 13, and 3 years after a foreclosure.
The bankruptcy trustee generally does not mind you purchasing a home, but the Chapter 13 trustee and judge are concerned with whether the mortgage and budget are affordable. A bankruptcy filing does not prevent you from purchasing a home; if you have made payments on time for a significant time, it is possible to buy a new home. All of this does require disclosure at every step of the process when you decide to sell or purchase a property.
Include Your Bank, Bankruptcy Trustee, and Bankruptcy Lawyer in the Sale or Purchase
The Trustee has a reason to be a part of the entire process. It affects his profits. If you ask for his help, he will often give it.
Your Chapter 13 plan and schedules need an amendment when you sell or buy a home. Your expenses and assets have changed, and the amount that must be exempted will often change. Your house payment or plan payment may go down or up due to the acquisition.
Creditors may not object, but if you don’t disclose, you may lose the ability to exempt and keep the property. Be sure to follow the bankruptcy code and meet with your bankruptcy attorney to do the disclosure and account for the proceeds.
A Legal Issue & Unexpected Consequences
In Chapter 13, only claims that are filed can be paid. If unsecured debts are not filed, they are repaid nothing. If you dismiss Chapter 13, it is as if you had never filed. The interest and penalties and any default suddenly become due on these debts.
Some creditors often fail to file claims if you file a second case. But the interest on the debts in a second case may have increased. You should time any dismissal, so creditors have little or no time to act.
Selling the home in a Chapter 13 bankruptcy will delight the mortgage holder if you are behind on payments. He will not complain if your chapter 13 repayment plan repays enough money to pay off the debt. The Chapter 13 bankruptcy trustee will receive his 4.5% when your chapter 13 bankruptcy is paid off.
Contact Us for Professional Assistance!
Stop by if you want to buy a home before your bankruptcy discharge. We are lawyers who respect the attorney-client relationship. You are our primary concern. Congress appointed our law office as a debt relief agency. We are happy to give you a free consultation and plan a strategy to provide you with the debt relief you deserve. Contact now to seek professional help; we also offer a free consultation.
Resources for Bankruptcy
Louisville, Kentucky Bankruptcy Forms
Benefits of a Chapter 7 Bankruptcy • Video
What is the Student Loan Brunner Test?
Filing Chapter 7 & Chapter 13 Bankruptcy
Student Loan Bankruptcy Qualifications
Chapter 11 Business Bankruptcy Information
If you are considering bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office immediately to start the conversation—Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
