Can I Sell My House During Chapter 13?

Chapter 13 bankruptcy provides a structured repayment plan for individuals with a steady income, allowing them to reorganize their finances and pay off debts over a period, typically three to five years. This form of bankruptcy allows debtors to retain their assets, including a home. While a Chapter 13 plan is active, selling significant property like a house requires specific legal procedures and court oversight. This involves obtaining permission from the bankruptcy court and working closely with the Chapter 13 trustee. This ensures any sale aligns with the repayment plan and serves the interests of both the debtor and their creditors.

Seeking Court Approval for a Sale

Selling a home during an active Chapter 13 bankruptcy case requires formal court authorization. This process begins with filing a “Motion to Sell Real Property” or similar request with the bankruptcy court, outlining the debtor’s intent to sell.

Once filed, the motion must be served on all interested parties, including the Chapter 13 trustee and all creditors. This notification allows them to review the proposed sale and raise objections. Creditors might object if they believe the sale could negatively affect their interests or the repayment plan. The Chapter 13 trustee reviews the sale details and may offer recommendations to the court. If objections are raised or clarification is needed, a court hearing may be scheduled. The court’s approval is formalized through an order, granting permission to proceed with the transaction.

Preparing Your Sale Request

A motion to sell property during Chapter 13 bankruptcy requires thorough documentation and clear justification. This request must detail the reason for the sale, such as a need to downsize, relocate for employment, or address financial changes. Providing a compelling reason helps the court understand the sale’s necessity.

The motion must include information about the property, including its address, legal description, and a recent market valuation, often supported by an appraisal. Details about existing liens or mortgages, including amounts owed, must also be stated. The proposed terms of the sale are essential, outlining the sale price, prospective buyer, real estate agent commission, and estimated closing costs. A copy of the purchase agreement is typically attached. The request must also specify how sale proceeds will be distributed, accounting for payments to secured creditors, administrative expenses, and other claims.

Handling Funds from the Sale

When a house is sold during Chapter 13 bankruptcy, the proceeds are not immediately available to the debtor. Funds typically flow through the Chapter 13 trustee or are distributed under court order, ensuring money is handled according to the bankruptcy plan and legal priorities.

The distribution of funds follows a specific order. Secured creditors, such as the mortgage lender, are paid first. Administrative expenses related to the sale, including real estate commissions, attorney fees, and closing costs, are then covered. After these, priority unsecured claims are addressed, followed by general unsecured creditors. Any remaining equity after all debts and costs are satisfied may be returned to the debtor or used to fulfill Chapter 13 plan obligations, depending on the case and court directives. A closing attorney or title company often ensures distribution adheres to the court’s order.

Modifying Your Bankruptcy Plan

Selling a house during Chapter 13 bankruptcy almost always requires modifying the existing repayment plan. This is because the sale alters a debtor’s financial situation, either by generating funds or changing monthly expenses. A modification reflects the new financial landscape, potentially leading to an early plan payoff, increased payments to unsecured creditors, or adjustments to future payments if housing costs change.

The process for modifying a Chapter 13 plan involves filing a motion with the bankruptcy court. This motion must explain the reasons for proposed changes and provide supporting documentation. Notice of the modification request is provided to creditors and the trustee, allowing them to review and object. The Chapter 13 trustee reviews the proposed modification, assessing its feasibility and fairness. If no objections are raised or resolved, the court approves the modified plan, which governs the debtor’s remaining obligations. This ensures the plan remains consistent with the debtor’s current financial capacity and bankruptcy objectives.