You can sell your home during Chapter 13
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One of the main reasons people seek bankruptcy relief is to stop a foreclosure or catch up on back mortgage payments before a foreclosure initiates. But sometimes, keeping the home is not the best long-term financial strategy. In some cases, selling your home may be a better option, but to do this, you need some relief from your mortgage lender to get organized. It is possible to enjoy the relief of Chapter 13 bankruptcy and sell your home. Here’s a look at how it works.
Your home is part of the Chapter 13 estate
All of your assets belong to the Chapter 13 estate that is managed by the Trustee assigned to your case so long as you’re in Chapter 13. You keep all of the assets during the case, but you don’t control them and cannot dispose of them or refinance without permission of the Trustee. Buying or selling a home is a major decision that requires Trustee consent.
When you may want to sell your home during Chapter 13
If you are struggling to make your mortgage payments, that indicates a clear problem. You may have bought your home when you were earning more money, and now the payments are out of alignment with your wages. Or you may have bought more home than you can afford on an adjustable rate mortgage when interest rates were low, and now they are high. If you are upside down on your loan or have no equity, selling the property makes sense.
How to sell your home during Chapter 13
There is an initial waiting period after you file your Chapter 13 petition before you can request to sell your home during the bankruptcy. To get the ball rolling, you have to take these steps:
- Have your home appraised
- Work with your attorney to develop a plan for how to distribute any funds generated by the sale among your creditors
- File a motion to sell that includes the above information
- After you get approval from the Trustee, put your home on the market
- Once you close the sale, prepare a statement listing the sale price, closing costs, balance paid to the mortgage lender and any leftover funds
- File the statement of sale with your Trustee
- The Trustee will make the payments using any proceeds to your creditors, towards your plan or other approved use
You can buy a home in Chapter 13
You may be able to use any proceeds from the sale as a down payment on another home, so long as your Trustee approves and certain requirements are met including:
- You must be current on all Chapter 13 plan payments
- You must have been in repayment for a reasonable amount of time
- You must not have any accounts that have fallen delinquent after your filing
- You must find a lender willing to work with a borrower who is in Chapter 13
Selling your home (or even buying one) during Chapter 13 can be complicated
There are additional paperwork requirements to sell your home during Chapter 13 – and even more to buy another home – but it can be done. You will have to work closely with your attorney who will have to negotiate with the Trustee assigned to your case. You can’t buy or sell without the proper paperwork filed or without permission, or you can end up violating bankruptcy laws that can result in your Chapter 13 being dismissed or, even worse, being accused of bankruptcy fraud.
If you live in North Carolina, contact the Law Offices of John T. Orcutt for more information about how Chapter 13 bankruptcy can help you. Call +1-919-646-2654 today for a free NC bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington – be sure to ask about our zero down bankruptcy.