Chapter 13 bankruptcy is a useful tool to reorganize your finances. Sometimes that reorganization that includes the sale of real estate. Knowing how to do it right will keep you from getting in trouble with the Chapter 13 trustee and the judge assigned to your case.
Let’s say you filed a Chapter 13 bankruptcy and decided that selling your house makes sense for you. You need to realize is that when you file your bankruptcy case, all property that you own becomes part of the bankruptcy estate. This means that, in the absence of court permission, you’re not allowed to sell, transfer, or dispose of any property. Doing so is going to get you into a load of trouble.
The first thing that you need to do in order to make sure you don’t get into trouble when you want to sell your house is speak with your lawyer. Your attorney will help you navigate the bankruptcy system as you try to sell the house. There are few things as uncomfortable as leaving this key player out of the transaction until it’s too late.
Be sure to let your buyer know that you’re currently in an active Chapter 13 bankruptcy. This way, if there’s a hold up in getting the sale approved, your buyer won’t start to freak out. Make sure that your real estate broker is aware of your situation as soon as you decide to sell your house.
You may need court permission to hire your real estate broker to represent you. In the absence of bankruptcy court permission, you may not have the right to enter into a binding contract for the sale of your house.
Once the real estate broker has been hired, you’re going to need to get the contract to sell the house approved by the bankruptcy court. Thankfully, Chapter 13 gives you the right to make these requests. This stands in contrast to your rights and powers under Chapter 7, which gives the trustee the exclusive power to sell your property pursuant to 11 USC § 363.
The request to sell your house will be made to the judge assigned to the case, and notice must be given to the trustee as well as to all of your creditors. Your lawyer will be able to draft the motion and make sure that it complies with all of the local requirements, but in most places your Chapter 13 trustee will require that the judges order to include certain provisions for the turnover of proceeds for the funding of your Chapter 13 plan.
There is, however, one wrinkle as far as the timing of this transaction. Federal Rules of Bankruptcy Procedure 6003 provides that the bankruptcy court cannot issue an order granting a motion to sell property within 21 days after the date that you file your Chapter 13 case. Therefore, if you’re on the cusp of finalizing a contract and the need to file for Chapter 13 bankruptcy before the contract is completed, you should let the real estate agent as well as the buyer of your house no at the transaction may be held up for a few extra weeks.
This may sound complicated, but in the hands of an experienced Chapter 13 bankruptcy attorney the entire process can run fairly smoothly. Due to the technical aspects of the motion, however, this is definitely something that you don’t want to try on your own.
Image credit: Ian Muttoo
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