What Happens if You Sell Your House When You are in a Chapter 13 Filing?
When filing for bankruptcy, there are two main options: Chapter 7 and Chapter 13. While Chapter 7 wipes out debts, Chapter 13 allows you to keep your assets with a repayment program.
Most people opt for a Chapter 13 bankruptcy so they can keep their home. The modified repayment plan frees enough debt, so they have enough income to make mortgage payments.
Payment plans can last three to five years, though. A lot can change during that time. You may decide you want to move. This means selling your home. Can it be done?
You have to remember that in a Chapter 13 bankruptcy, all your assets become part of a bankruptcy estate. This means you do not technically own them, so you cannot just do whatever you want with them. Selling your house during Chapter 13 can affect your bankruptcy plan significantly.
Selling a home during bankruptcy is complex but not impossible. You will need explicit approval from the bankruptcy court to sell your house during this period. A court’s approval is a required step to ensure that the sale aligns with your bankruptcy plan. The next steps require a lot of planning and legal support to make everything happen.
Motion to Sell
Your attorney will file a motion to sell with the court. This motion explains the sale’s details, why it is necessary, and how the proceeds will be used. Creditors are notified and may object if they believe it affects their interests.
Repayment Requirements
In Florida, if the home was your homestead, you may not have to use the sale proceeds to pay your creditors. If you intend to buy a home in the future, the funds you receive from the sale should be placed in a designated “homestead proceeds” account.
Adjusting Your Chapter 13 Plan
After the sale, you may need to modify your Chapter 13 plan. The circumstances vary by case.
Closing the Sale
Once you get approval from the court and the trustee, you can proceed with closing.
Contact Us Today
Bankruptcy is not an easy process. There are many rules that apply, whether you opt for Chapter 7 or Chapter 13.
Florida bankruptcy attorney Brian K. McMahon, P.A. can help you understand the processes. We have more than three decades of experience. Schedule a consultation by filling out the online form or calling (561) 658-1789. We serve the West Palm Beach, Boca Raton, Port St. Lucie, and South Florida areas.