Does a Chapter 13 Debtor Really Have to Get Court Permission to Sell Property?

29 Feb Does a Chapter 13 Debtor Really Have to Get Court Permission to Sell Property?

A Chapter 13 debtor MUST get Bankruptcy Court permission to sell property while their Chapter 13 case is pending. In fact a debtor in ANY bankruptcy chapter must get court permission.

Permission to sell comes in the form of an Order from the Court, which only comes after a motion is made seeking the Order to allow the sale of the property in question. The motion to sell must attach a copy of the sales contract, and must list the purchase price, proof of the property value, and where the proceeds of the sale are to go. If an attorney and/or realtor are getting paid from the sale proceeds, they need to be specifically approved to be paid as professionals.

It takes some time to get an Order from the Bankruptcy Court approving the sale. The motion needs to be filed at least 21 days beforethe date the Court sets for the hearing on the matter. Sometimes the Bankruptcy Court will allow it to be made on shortened time. Be sure to speak with your bankruptcy attorney as soon as you think you might want to sell your property so they can give you the best advice as to how to proceed and how long it will take.

What if you sell the property without an Order from the Court? Judge Cangilos-Ruiz in the Syracuse Division of the Northern District of New York was just faced with that question. A Chapter 13 debtor sold her home without a Bankruptcy Court Order allowing it, and a year later their attorney learned of the sale and made a motion to approve it after the fact. The judge was not happy, but after learning of the particular circumstances of the case decided to grant the motion. She could have granted the motion but disallowed the attorney fees for the closing attorney and disallowed the realtor fees. If she did that, the attorney and realtor would have to pay back their fees to the Chapter 13 Trustee. Or she could have denied the motion to approve the sale, which would result in a serious blight on the title for the new owner, and very likely a malpractice lawsuit by the new owner against his/her attorney.

Selling property while in a Chapter 13 is sometimes the best was to pay the creditors the amount they are required to get without having to make huge monthly payments to the Trustee. Early in the process, even before you file your Chapter 13 case you should fully discuss the possibility with your bankruptcy lawyer.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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