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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

Indianapolis Bankruptcy and Inheritance

Indianapolis Bankruptcy and Inheritance: What You Need to Know

Image of a Will and Bankruptcy Petition

The rules of bankruptcy and inheritances can protect you from losing an inheritance to creditors.  In Indiana, there is no special bankruptcy exemption that allows you to keep your inheritance when you file for bankruptcy. Therefore, it is very important in Indiana to understand clearly which inheritances can be come part of your bankruptcy estate.

Inheritances and Chapter 7 Bankruptcy

There are special rules that apply to bankruptcy and inheritances in Indiana. When you file for bankruptcy under Chapter 7, any inheritance that you are already due to receive is part of the bankruptcy estate automatically. Therefore, if someone has already died and your bankruptcy case has been filed, you will be required to turn over the proceeds of your inheritance to the Bankruptcy Trustee to repay creditors. The special rule applies, however, where inheritances become due for up to six months after the bankruptcy case is filed. For this six month, 180 day period, the inheritance must still be turned over to the bankruptcy estate to help repay your debts.

Chapter 13 Bankruptcy and Inheritances

Chapter 13 bankruptcy can even create a larger period of time where any inheritances could be forced to be paid to the Bankruptcy Trustee to repay creditors. This is because during the entire life of the Chapter 13 repayment plan, you will be required to turn over any inheritance received at that time to help repay some of your creditors. Therefore, if you are expecting to receive an inheritance during your Chapter 13 bankruptcy case, it is very important to make plans accordingly. Perhaps a Chapter 7 case could be advisable if you are eligible to reduce this time period in which inheritances must be turned over to the Bankruptcy Trustee.

Conclusion:  Inheritances and Bankruptcy Require Guidance By An Attorney

If you are anticipating an inheritance sometime in the future, careful debt relief planning will be required to make sure that you can enjoy the maximum benefits possible. Bankruptcy can be a powerful tool in planning for debt relief even if you may receive an inheritance sometime in the future. If your plan includes bankruptcy, make sure to understand the ramifications of family member’s early passing.

~Indianapolis Bankruptcy Attorney John F. Bymaster on Inheritances and Bankruptcy

Time-tested Brands and Chapter 11: The New Norm?

Chapter-11-Bankruptcy-Portland-Oregon

Let’s discuss time-tested brands and Chapter 11: The New Norm?  Why are so many time-tested, brand-name businesses filing for Chapter 11?   Attention is focused on the Radio Shack Chapter 11 case pending with 9,000 jobs on the line.   Is Chapter 11 the best mechanism for saving a failing business?

The answer is usually “yes.”  Through the flexibility of Chapter 11, a business’s “ongoing” value can be salvaged in numerous ways.  When most people think about a Chapter 11, they understand Chapter 11 to be a reorganization of the existing entity.   The traditional understanding of Chapter 11 seems to be as such: (1) the same corporate entity, shareholders, and leadership will remain active and in charge, 2) existing secured debts will be reduced to market value and bad leases rejected, and 3) unsecured creditors will be paid at a dramatically reduced amount.   This scenario is a very common goal and outcome of Chapter 11.   But, a more “liquidation-type” scenario is many times much more appropriate and beneficial to the overall ongoing concern of all parties.

To salvage overall value and to prevent collective societal waste of resources, Chapter 11 many times is used to “liquidate” into a “reorganized” state.    This simply means that several “buyers” or “bidders” will come to the table to purchase different aspects (or the entirety) of the business in an auction-like scenario.  Many times, these “bidders” will desire to purchase the name of the business and continue operation with existing employees.   Other times, these bidders will choose to absorb or merge the companies’ resources into another company, creating a variety of “salvaged” scenarios.  Just because a Chapter 11 is moving toward a more liquidation route does not necessarily mean that the brand name or employment arrangements will not continue.

Remember cases such as American Airlines and Kmart where Chapter 11 saved these brand-name companies.   Kmart not only recovered from Chapter 11 bankruptcy but went on to purchase the Sears Corporation five years after their Chapter 11 bankruptcy filing.   Chapter 11 can be the only option powerful enough to save the value of a business and protect as many employees from losing their jobs as possible.

With our high-debt, ever-changing economy, these Chapter 11 filings – that are now so prominent and common place in the news –  may only be the beginning.   Our economy is encountering fundamental changes with technology and problems with over-dependence on complex debt systems: much greater overall “reorganization” is almost inevitably on the horizon.

– Indianapolis Bankruptcy Attorney John F. Bymaster