The filing of a bankruptcy case creates an artificial entity known as the debtor’s bankruptcy estate. All of the debtor’s property becomes part of this estate subject to exemptions. A bankruptcy debtor may not freely buy or sell assets of this estate as it is subject to the management, control, and oversight of the bankruptcy trustee assigned to the debtor’s case. The trustee must therefore approve any major financial decisions that affect the property in this estate, including a debtor’s home. Any purchase or sale of an important asset such as a home must be approved by the trustee and bankruptcy judge assigned to a debtor’s case.
Thus, bankruptcy debtors do maintain the right to sell their home after filing a Chapter 13 bankruptcy case, subject to approval. Selling while a Chapter 13 case is pending requires a motion to approve the sale. This motion should include an appraisal and other relevant documentation to substantiate the home’s value and a proposal for distributing the sale proceeds. These motions are typically approved unless they contain some unreasonable provision.
A Chapter 13 debtor may also buy a house while a Chapter 13 bankruptcy case is pending but this may be slightly more complicated. A Chapter bankruptcy debtor must request permission to incur new debt, which allows a debtor to apply for financing. Provided that there is no present delinquency in plan payments for the Chapter 13 case, this should meet the approval of the trustee and court.
Once approved, a debtor may shop for a mortgage although the market may be thin based on the debtor’s involvement in the bankruptcy case. However, if a debtor can demonstrate financial stability that is current notwithstanding the bankruptcy case, there should be financing options available. Patience is virtuous for debtors who seek mortgages while in bankruptcy.
Also, any down payment or cash closing costs requirement may be challenging since if a home is not being sold to obtain funds for the new purchase, the source of these closing funds will be heavily scrutinized by the bankruptcy trustee who may assume that the debtor’s income has increased and then decide that he or she has sufficient income to increase their monthly Chapter 13 payments.
For anyone considering either selling or buying a home while in Chapter 13 bankruptcy case, based on the complex requirements involved, it is always wise to seek the help of an experienced bankruptcy attorney.
Theron Morrison and the Morrison Law Group help their clients through every important event in their bankruptcy case, especially when buying or selling a home. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.