How to Sell Your House While in Chapter 13 and How Long After Discharge You Can Sell It

The short answer is “maybe,” but we need to review the entire process to explain that answer.

What Is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy, sometimes called a “wage earner’s plan” or “debt reorganization,” can take place when your short-term debts far outpace the amount of income you have each month.

This legal filing allows you to keep certain assets and sell others to repay your debt over a period of three to five years. A court-appointed bankruptcy trustee supervises the financial reorganization process.

Even though it’s a federal filing in federal court, state laws can impact how the bankruptcy is conducted. These state differences can be significant.

The purpose of the bankruptcy reorganization plan is to give you an extension of time to pay your accumulated debt. Some of the debt will be reduced or eliminated by creditors; others will be repaid over a longer period of time.

A Chapter 13 filing might also allow you to keep your residence. If foreclosure proceedings have started, however, it may be too late to keep your house when you wait to file a bankruptcy petition.

This legal filing can also allow you to restructure your mortgage payments to match the amount you receive from work income and revenue collected by the court from selling some of your personal assets.

You’ll still pay your mortgage debt in full under most Chapter 13 plans, but the payment schedule is modified to match your current income.

There’s a cap of approximately $3 million on the amount of debt you can have and still file this type of bankruptcy petition.

Steps to File Chapter 13

1. Sign up for credit counseling from a federally approved credit counseling agency. This can be done by attending either individual or group sessions.
2. Collect documentation to show your liens, debts, and assets.
3. Hire a bankruptcy lawyer to assist you in creating an asset and liability inventory.
4. File a petition for Chapter 13 bankruptcy with the federal court. The petition includes the information you’ve collected about your personal finances, a certificate showing you’ve completed credit counseling and payment for the required filing fees.
5. When you file for Chapter 13 bankruptcy, a bankruptcy estate is created and a trustee manages all your assets.
6. You’ll develop a repayment plan and your bankruptcy attorney will submit it to the court. This is typically due within two weeks of your initial filing.

   This is the time to incorporate a property sale to an investor as part of your bankruptcy plan, if you’ve made that financial decision.

7. The court will evaluate the repayment plan and either make modifications or approve it.
8. You’ll complete the plan, and the court will discharge the bankruptcy after you’ve fulfilled the terms of the agreement.

The next question Chapter 13 filers sometimes ask is, “Can you sell your house if you filed Chapter 13?” Yes, but there are some caveats to that sale.

Selling Caveats

You cannot sell your house after filing Chapter 13 without the court’s permission.

Just like selling a house in Chapter 7, you can sell a house while in Chapter 13 bankruptcy, but only if it aligns with the official bankruptcy plan that you’ve agreed to follow, and when your court-appointed trustee has also approved the sale.

Working with your legal professional, your trustee, and an experienced property investor with a history of buying homes under Chapter 13 filings can ensure you’re following federal and state law in completing your home sale.

If you sell without court approval, or your sale violates the terms of your Chapter 13 bankruptcy agreement, you can face serious legal charges. It may also void your federal bankruptcy agreement.

Yes, in most cases you can sell your home after Chapter 13 discharge immediately after the final discharge.

But, depending on the terms of the discharge, or state laws, you may still need court approval before you can sell your property.

The most opportune time to sell your home while in Chapter 13 might be incorporating the residential sale as part of the reorganizing plan you present to the court during the bankruptcy filing.

The answer to this question depends on the details of your Chapter 13 agreement. You may not need to wait at all after a Chapter 13 discharge, but the formal discharge could take three to five years to be final.

You have a few options when selling your house after you’ve filed for bankruptcy, but only one allows you to sell your home fast (compared to the others).

Listing and selling your house the traditional way by using a real estate agent when you’re in a Chapter 13 reorganization is difficult.

Why? You’ll need to find a real estate agent who wants to take on a property listing while the homeowner is in Chapter 13 bankruptcy. Typically that’s not easy.

Your house takes the same effort as any other listing, but your property will be tied up in court proceedings for much longer than other traditional sales due to mandatory delays in the bankruptcy process.

Your real estate broker or agent’s typical clients aren’t interested in looking at homes in foreclosure due to the court-trustee oversight process. That takes time to complete.

The court may collect offers from potential buyers over several months and sit on them to compare terms and prices before deciding to select one.

Home shoppers working with agents generally aren’t familiar with purchasing a property under bankruptcy restrictions. Buyers typically also want to move quickly to take possession of a home and move in right away.

Chapter 13 sales can take a very long time, sometimes a year or more. This is longer than most buyers will wait to close on a property.

Who Buys Houses Sold Due to Bankruptcy?

While most people avoid distressed properties, there is a category of home buyers who actually look for homes sold because of bankruptcy — real estate investors.

They purchase homes to convert them into rentals or resell at a profit. Investors buy houses as is (without requesting you to do repairs before closing) and for cash.

You can connect with them right on this website — HouseCashin.com. HouseCashin screens local professional cash home buyers for you to make sure you deal with a reputable and ethical professional.

Benefits of Selling Your Property to an Investor in Chapter 13 Bankruptcy

By selling a house to an investor who is one of our partner cash property buyers, you’ll have a number of benefits that only a professional can offer.

The most important advantage is investors understand the bankruptcy process and will assist in resolving issues related to selling your house in bankruptcy.

They’re patient with mandatory court delays and unexpected legal snags related to your bankruptcy.

You’ll also have the advantages of:

• A cash offer. All-cash sales don’t depend on lenders. A cash buyer won’t have to order an appraisal or inspection required by a mortgage company and won’t depend on their approval to issue a loan on the house.

• A fast sale. The investors partnering with HouseCashin are professionals with years of experience buying properties sold due to bankruptcy.

  They’ll facilitate the sales process when they’re asked to be of assistance. They won’t get in the way of what you need to do to reorganize your debt!

• No home seller closing costs. Your investor will pay these fees when it’s advantageous to you to have these covered by your buyer.

• Skipping real estate agent commissions. The cost of selling a house with a realtor can put a major hit on your already strained budget. You’ll save 2-6% of the home’s final sale price when you sell to an investor. That extra money can go to cover your other liens or debts.

• An as-is sale. You won’t need to lay out cash, or go deeper into credit debt, to fix anything on your home if you are selling a house that needs work.

  Investors will purchase your property in as-is condition. You also won’t need to pay fees for cleaning. Cash buyers aren’t concerned with washed windows or shampooed carpets when they visit your house.

  They aren’t even concerned with stacks of personal items if you are selling a hoarder house. They’re buying your house, not a staged decorator showroom that some traditional buyers now expect to see when home shopping.

• Keeping the paperwork to a minimum for the property sale. You won’t have an endless stream of counters and the requirement to respond to those counter offers.

How It Works

What happens if I sell my house during Chapter 13 bankruptcy? You’ll need to follow some basic steps to complete the transaction.

1. Request a free, no-obligation cash offer for your property by using our online platform that connects you with partnering experienced cash buyers.
2. Arrange a mutually agreeable time to meet at the house for a walkthrough. If you have more than one investor interested in your property, tour each one through your home.
3. Receive the all-cash offers and select the one that best fits your needs.
4. Ask the investor to draw up a sales agreement that includes a provision for the bankruptcy court to approve the sale.
5. Have your bankruptcy legal professional review the offer. They will file a motion to sell your house that must include comprehensive sale details, such as the buyer’s information, the home’s final sale price, and the proposed closing date.
6. Present that offer to your court-appointed trustee. This step may take months to complete. Traditional buyers will balk at this, but cash buyers understand the process and will wait patiently during this time.
7. Attend a hearing with your legal representative, trustee, mortgage lenders (if you have mortgages) and the investor.

   Professional investors have done this before and have experience with these negotiations. They can assist by bringing the documentation you need to present at this hearing.

8. Once the bankruptcy judge approves the transaction, your investor will open escrow.
9. Your escrow officer will handle all the details, including ordering a title search to discover any other liens that remain on your property.

   You may have unrecorded liens that you’ve forgotten, or you weren’t told were filed on your house. These need to be cleared before the transaction can close.

10. Copies of the closing documents will then be sent to the court for final approval and signatures. This ensures that your sale meets all the legal requirements of a traditional sale, as well as the list of official requirements of your bankruptcy.

    As part of this process, the court will also examine the sale proceeds to ensure fair treatment of creditors.

11. Your escrow officer will transfer money according to the sales contract and the terms listed in the court agreement.
12. The final closing statement will be sent to the court.
13. Your investor may pay your closing costs, if it’s to your benefit under the bankruptcy terms. Your cash buyer will also allow you to leave unwanted items behind in the house for disposal.

Requesting an offer is the easiest part of the home sales process. Get cash offers now by filling out just one simple online form!

That’s it. Quick and easy, and you’re on your way to having the sales contract you want to present to the bankruptcy court.