After filing for Chapter 13 bankruptcy, you give up a lot of financial control to your bankruptcy trustee. Even though you keep possession of your property, like a home, it becomes part of your Chapter 13 bankruptcy estate. The trustee manages this estate and makes major financial decisions that affect your property. This includes buying or selling a home.
While the trustee must approve the transaction beforehand, you can buy or sell a home while in Chapter 13 bankruptcy. You should be prepared for a lot of extra paperwork and additional time for appropriate approvals, but Chapter 13 should not prohibit you from making these decisions.
A Cleveland bankruptcy attorney with Luftman, Heck and Associates can explain what to expect if you’re considering selling or buying a home while in Chapter 13, and help you move through the process a lot easier.
Call (216) 586-6600 today and set up a free and confidential consultation.
Selling a House While in Chapter 13
So long as you wait 21 days, you maintain your right to sell your home after filing for Chapter 13 bankruptcy.
If you want to sell while in Chapter 13, first, you need to file a motion to sell. This includes a house appraisal or other documentation to validate the home’s value and a proposal for distributing the proceeds of the sale.
If the trustee deems your motion reasonable, your proposal to sell will typically be approved.
Statement of Sale
Once you the sale closes, you must file a statement of sale with your trustee immediately. It should include:
- The home’s final sale price
- Closing-related deductions
- The balance turned over to pay off the mortgage
- Any remaining proceeds from the sale
Once you file this document, the trustee will order any payments necessary according to your proposal, such as paying creditors, making a down payment on a new home, or discharging your debt if the funds cover the costs needed to pay off your Chapter 13 repayment plan.
Buying a House While in Chapter 13
Buying a house is also possible while in Chapter 13. But it can be a bit more complicated.
Before you start, you need to get permission to incur debt from your bankruptcy trustee. This lets you apply for a mortgage to finance the home. You can usually do this as long as you’ve been in your Chapter 13 plan for a reasonable amount of time, are current in your payments, and don’t have any past due accounts since your bankruptcy filing.
Will Banks Lend to Someone in Chapter 13
If approved, you can shop for a mortgage, but be prepared to take your time. Sometimes people struggle to find a bank willing to offer a new mortgage while they are in Chapter 13 bankruptcy. You need to make sure they are offering a fair rate that you can handle within the Chapter 13 repayment plan.
Getting the Down Payment
In addition, any down payment or cash closing costs requirement can be tricky. If you are not selling a home to get the funds for a down payment, the source of the money will be heavily scrutinized by your bankruptcy trustee. If you saved this amount while within Chapter 13, the trustee may decide that you have sufficient income to increase your monthly Chapter 13 payments.
However, getting this money as a gift from family may be an option. Remember, though, a personal loan is a form of credit that still needs to be approved by the bankruptcy trustee — even if it comes from your parents or another family member. Because of these limitations, many people prefer to wait to purchase a home until after their Chapter 13 has been discharged.
A Cleveland Bankruptcy Attorney Can Help
If you are considering either selling or buying a home while under Chapter 13 bankruptcy, it is always a good idea to seek the help of your bankruptcy attorney because of the complexities involved. At LHA, we can ensure that you don’t violate your bankruptcy guidelines, risking the chance that your discharge will not be granted.
Your bankruptcy lawyer can file the appropriate motions and adjust any contracts of sale or purchase. This ensures you are protected if the trustee rejects a proposal and you stay compliant with all the other restrictions.
Call Luftman, Heck and Associates today at (216) 586-6600 to speak to a Cleveland bankruptcy attorney to find out how we can help you buy or sell a home while in Chapter 13 bankruptcy.