Buying and Selling a House in Chapter 13

Nice home in suburbs

An Article by Indianapolis Chapter 13 Bankruptcy Attorney John Bymaster

Buying and Selling a House in Chapter 13 – We have already discussed how Indianapolis Chapter 13 cases are very flexible, but can you buy or sell a house during a Chapter 13?   The answer is “yes,” you can buy or sell a house during a Chapter 13 plan.   However, you must get approval from the Chapter 13 Trustee and the Bankruptcy Court.

Getting Approval by the Chapter 13 Trustee

Before you are able to buy or sell a house during a Chapter 13, you must seek approval with the Chapter 13 Trustee.  Whenever an asset of a large nature is sold during a Chapter 13 or any new form of financing is obtained, it must be approved by the Bankruptcy Trustee.   Because of these two requirements, you must get approval on a sell or purchase of a home.   You must also agree on the sale of home how the funds will be used after you receive them.

Do I Get to Keep the Money when I Sell my Home in a Chapter 13 Plan?

Generally, the question of whether you are required to turn over the funds on a home sale comes down to whether those funds were exempt when you first filed your Indianapolis Chapter 13 bankruptcy case.   If you are single in Indiana, you can currently take $17,600 of exemption on your residence.   If you are married and both of you own the home, you can take $35,200 of exemption on your residence.    If you sell your residence and receive less than these amounts in the sale, it is arguable that these funds should NOT be turned over to the trustee – especially if you are going to use them to purchase a new home.   However, if you are selling rental properties or originally non-exempt property, you may have to make an agreement with the trustee ahead of time as to how much will be paid into the Chapter 13 plan.

Getting Approval by the Bankruptcy Court

After getting Trustee approval and agreement on your purchase or sale, your Chapter 13 bankruptcy attorney will be required to file a Motion to get approval with the bankruptcy court.  The motion for purchasing a home will be something along the nature as a Motion to Incur New Debt.   The motion for selling the home will be along the lines as a Motion For Authority to Sell the Property.   These motions are required to preserve the authority and function of the Chapter 13 bankruptcy system.  They are a final notice to the Chapter 13 trustee of what is about to occur.

Getting Financing When you Buy a House in Chapter 13

Is it possible to get financing to buy a home during a Chapter 13 case?  Yes, it is possible to obtain financing to purchase a home during a Chapter 13 plan.  Our Indianapolis Chapter 13 bankruptcy office has seen several of our clients over the years obtain financing to purchase a home during a Chapter 13 case.  Because many of our Chapter 13 debtors are repaying a large amount to creditors during their plan and they maintain high incomes, lenders are not necessarily in objection to mortgage lending during Chapter 13 cases.   However, financing simply may not be available to many individuals during Chapter 13 due to normal reasons such as insufficient income, insufficient credit, or other fundamental requirements of lending.   Keep in mind that the Chapter 13 filing may not bar you from lending, but may be a factor of consideration also when the creditor is offering home loan options.

CONCLUSION: CHAPTER 13 WILL NOT PREVENT YOU FROM BUYING OR SELLING A HOME

If you are entering a Chapter 13 but still desire to either buy or sell a home, you will likely not be precluded from such a sale or purchase during your Chapter 13 case.   Although there may be some minor “red tape” issues to resolve such as described above, your sale or purchase is by no means prohibited by Chapter 13.   If you need Chapter 13 relief in Indianapolis, do not hesitate because of your home concerns.  Contact our Indianapolis bankruptcy office and we can get you the information you need about a getting out of debt.

-By Indianapolis Chapter 13 Attorney John Bymaster