If you want to sell your house while in the midst of Chapter 13 bankruptcy, you likely have several questions about the process, legal requirements, and timing. In this blog, we’ll explore the nuances of selling your home during or after Chapter 13 to help you make informed decisions.
Can I Sell My House During Chapter 13?
Under Chapter 13 bankruptcy, all your assets become part of a bankruptcy estate, managed by a bankruptcy trustee. You’ll need explicit approval from the bankruptcy court to sell your house during this period. If you are already in contract to buy a new home or close to being in contract, this process begins by consulting with your bankruptcy attorney who will file a motion outlining the sale’s details – such as the buyer, the sale price, the estimated “net proceeds” from the sale, and the proposed closing date.
If you are not in contract to buy a home, you should consult with your attorney to discuss the many implications before you engage a broker (discussed below), expend resources to prepare and market your home, or legally obligate yourself with a contract you might not be able to honor.
Remember, a court’s approval isn’t just a formality; it’s a required step to ensure that the sale aligns with your bankruptcy plan and the interests of all concerned parties.
How Does Filing for Chapter 13 Bankruptcy Affect My Ability to Sell My House?
Similar to what was explained above, when you file for Chapter 13, your property and financial transactions come under the court’s control. This means you cannot sell your house—or any other substantial asset—without prior approval from the bankruptcy court. This process ensures that the financial interests of your creditors are not adversely affected by the sale.
What Happens If I Sell My House During Chapter 13?
Selling your house during Chapter 13 can affect your bankruptcy plan significantly. If you sell your home, any proceeds from the sale will be scrutinized by the bankruptcy court to ensure creditors receive fair treatment. If the sale proceeds exceed your exempted home equity amount, the extra funds may need to be paid into your bankruptcy plan, potentially altering its terms or duration.
It also depends on whether your plan involved repaying 100% of your creditors’ claims or only a portion of those claims. If you are paying off 100% of those claims, the court is more likely to approve the sale of your home. If you are not paying off 100% of those claims, your creditors can object to the sale and prevent it altogether.
Can You Sell Your House After Filing Bankruptcy?
Yes, selling your house after filing for Chapter 13 bankruptcy is possible, but it involves strict adherence to legal procedures. Your bankruptcy lawyer will need to file a motion for the sale, which must be approved by the bankruptcy judge. The court will examine if the sale serves the best interest of all parties involved, including your creditors.
What Happens If I Sell My House Without Telling Anyone?
The court and your creditors will likely find out, as, among other things, the transfer of properties is public record, and your credit report will reflect a paid-off mortgage. Failing to disclose a sale could put you at legal risk and prevent you from retaining any of the net proceeds.
Can I Sell My House Under Chapter 13 Without a Real Estate Broker?
While you can sell your home without a real estate broker, using a broker might simplify the selling process and help ensure that you receive fair market value for your property, which is crucial for court approval. But hiring a broker may require court permission if you are in a Chapter 13 bankruptcy.
What Should I Do If I Want to Sell My House After My Chapter 13 Discharge?
Once you receive a Chapter 13 discharge, you are generally free to sell your property without the bankruptcy court’s involvement. However, it’s still wise to consult with your bankruptcy attorney to ensure all post-discharge financial actions comply with the closure of your case.
How Long After Chapter 13 Can I Sell My House?
The key here is to distinguish between the “filing date” and the “discharge date.”
Once you receive a Chapter 13 discharge, you are generally free to sell your property without the bankruptcy court’s involvement at any time. However, it’s still wise to consult with your bankruptcy attorney to ensure all post-discharge financial actions comply with the closure of your case.
If you want to sell your house after you file for Chapter 13 but before your Chapter 13 is discharged, there is no set waiting period. But you will need to get the court’s approval as discussed above.
How Long After Chapter 13 Can I Buy A House?
The distinction here is again between the “filing date” and the “discharge date.”
If you want to buy a house after you file for Chapter 13, you will need to wait at least one year if you want to obtain competitive mortgage financing while you are in Chapter 13. This is because mortgage lenders need to see that you have made at least 12 timely payments to the bankruptcy trustee before you are eligible for mortgage financing.
If you want to buy a house after your Chapter 13 is discharged, you will again need to wait at least one year to obtain competitive mortgage financing. This is because mortgage lenders require that your bankruptcy “season” for at least one year before you are eligible for mortgage financing.
Note: There are mortgage alternatives that have no waiting periods. These are “hard money” and “non-QM loans,” but they require substantial down payments (35% to 40%) and have much higher interest rates and fees.
Frequently Asked Questions
Can I sell my house and buy another home while I am in Chapter 13?
Yes, you can both sell your home and buy another while in Chapter 13 if the court approves both transactions. If you plan on buying another home with mortgage financing while in Chapter 13, you should wait until you have been in Chapter 13 for at least one year and have met all of the conditions necessary for obtaining mortgage financing while in Chapter 13 bankruptcy.
These conditions include a twelve-month history of on-time payments to the bankruptcy trustee as well as a minimum credit score of 580 in most cases. A brief consultation with a mortgage lender with bankruptcy experience is recommended so you can review all of the necessary conditions.
Can I buy another home if the court approves the sale of my current home?
Yes, but you will need the court’s approval for your purchase, too.
Can I get a mortgage while I am in Chapter 13 if I want to buy a house?
Yes, but you will need to meet some very specific conditions and get court approval. These conditions include proving that you have made at least 12 months of timely payments to the bankruptcy trustee, so you will need to have been in your Chapter 13 for at least one year before you can qualify for a competitive mortgage.
What are the risks of selling my house during chapter 13?
The primary risk involves the potential objection from creditors or the trustee if the sale does not provide adequate financial benefit to your creditors or if the sale disrupts your repayment plan. But again, if your plan entails paying off 100% of the demands of your creditors, the likelihood of approval is much higher.
How can I ensure a smooth sale process?
Engage a competent bankruptcy attorney who understands the complexities of Chapter 13 sales. Ensure all motions are filed promptly and provide complete transparency to the court and your trustee about your plans and the sale’s details.
If I am selling my house because I need the cash proceeds, are there other options?
Yes, if you just need cash and you have adequate equity, you might also consider refinancing while in Chapter 13.
Conclusion: How We Can Help
Navigating the sale of your home during or after Chapter 13 bankruptcy is complex but manageable with the right guidance. At JVM Lending, we understand the intricacies of mortgage lending both during Chapter 13 and after it is discharged. We can also assist with refinancing your current mortgage if you think that might be a better option for you.
We aim to provide you with the smoothest possible path to reclaiming your financial stability through homeownership, without overwhelming you with jargon or pressure. If you’re planning to sell your house during or after your Chapter 13 bankruptcy, contact JVM Lending for expert advice and compassionate service tailored to your unique financial circumstances.
If you have questions about selling your house during or after Chapter 13 bankruptcy, contact JVM Lending at (855) 855-4491 or email hello@jvmlending.com.
