Selling Real Estate During Chapter 13 Bankruptcy

When experiencing financial difficulties, many Americans find themselves considering bankruptcy as a way to manage their debts. One common form of bankruptcy pursued is Chapter 13. But a question that often arises is, can a debtor sell a house during Chapter 13 bankruptcy? The answer to this question isn’t as straightforward as a simple yes or no. It depends on various factors and requires the involvement of the bankruptcy court.

Chapter 13 bankruptcy is typically pursued by individuals who have a regular income but are unable to meet their debt obligations. This type of bankruptcy allows the debtor to create a repayment plan to pay off their debts over a period of three to five years. The debtor’s property, including their home, is generally not liquidated in this process, unlike Chapter 7 bankruptcy.

However, during the period of repayment under Chapter 13, if a debtor wishes to sell their house, they cannot do so without first obtaining the court’s permission. This is because, in the eyes of the bankruptcy court, the debtor’s assets, including their home, are part of the bankruptcy estate that is meant to repay creditors.

To obtain permission to sell their home, the debtor must file a motion with the bankruptcy court detailing why the sale is necessary, the proposed sale price, and how the proceeds will be distributed. The court will then review the motion, and if it deems the sale necessary and in the best interests of the debtor and the creditors, it may grant permission for the sale.

However, even after the court grants permission for the sale, the debtor must still consider the implications of doing so. The proceeds from the sale of the house may significantly impact the debtor’s Chapter 13 repayment plan. If the home’s sale generates a substantial amount of money, the debtor may be required to increase their repayment to creditors.

Moreover, selling a home during Chapter 13 bankruptcy doesn’t necessarily mean the debtor will be able to keep all the profits. If the debtor has non-exempt equity in the house, some of the sale proceeds might need to go towards repaying creditors. It’s also important to note that selling a house during bankruptcy can be a complex process, and it’s recommended that debtors seek professional advice before making any decisions.

In conclusion, while it is possible for a debtor to sell a house during Chapter 13 bankruptcy, it requires court permission and careful consideration of the implications. If you find yourself in this situation, it would be wise to consult with an experienced bankruptcy attorney. At Liviakis Law Firm, we can provide the guidance you need. Contact us at 916 459 2364.