If you are in Chapter 13 bankruptcy and you want to sell your house, it isn’t hard so long as you let your lawyer know early, and discuss how to do it before you get underway with the sale.
Permission must be granted by the bankruptcy judge in charge of your case or your closing won’t go through. It normally takes 3-4 weeks to get the hearing, so give your lawyer plenty of time to complete this necessary step or you may find your closing delayed or canceled.
The first step if you are thinking of selling your house is to figure out if you can sell the property for enough to pay off the mortgages. You also need to know if you have any equity in the house and you need to figure out if the equity is exempt. The exemptions in your case control whether or not you can keep any money from the sale if you have equity, and if so, how much.
Short sales might not be the only or the best option if you are underwater on a house and want or need to move, but sometimes you might want to consider a short sale.
Find out what your payoff is on all mortgages against the property. You may have taxes or judgement which also come into consideration, but your bankruptcy lawyer should have the information on those debts already since they are usually dealt with in your plan. Now, speak to a Realtor (or several) to see what the Realtor thinks your house will sell for.
- Do not sign a listing contract until you have spoken to your lawyer!
Now, call your bankruptcy attorney and tell them what you want to sell your house for, and what the mortgage balances are. Your lawyer should discuss the process with you and whether or not it makes sense.
How much money you can keep will depend on the amount of equity you have in the home and your exemptions in your particular state. If you can’t sell for enough to pay off all the mortgages, you might want to discuss whether or not the sale is wise, or if you want to consider short sale or other options.
Your lawyer will need to prepare a Motion to Sell Property which will contain the information you gathered and schedule a hearing before your judge. If you are trying to sell your house for a fair market price and you are able to pay off your mortgages and other required debts against the property, the court will likely approve the sale.
Many sales go through easily and the bankruptcy gives little problem – as long as the sales price pays off liens, is for a fair price, and the debtor thinks ahead and gets the permission to sell that is needed.
The closing goes like almost any other closing, and often there is just one more piece of paper, the Order Allowing Sale which your judge granted.
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Last modified: February 23, 2012