How do you sell your home in a Bankruptcy
November 29th, 2009, 9:22 am
There are two main chapters (or types) of Bankruptcy that Consumers typically file. Chapter 7 (liquidation) and Chapter 13 (reorganization). In order to sell your property in either of these, the bankruptcy court must not have an interest in the property or give permission to effectuate a sale. Under the Federal bankruptcy law, as soon as you file for bankruptcy, all of your legal and equitable interests become assets of the bankruptcy estate and as a result, is administered or managed by the Bankruptcy Court Trustee. What this means in plain English is that all of things you thought you owned, are temporarily owned by the bankruptcy court, unless those assets have been exempted in order to ensure a fresh start.In Massachusetts and most other states, the Debtor will attend a hearing called a “Meeting of Creditors” where the Trustee will ask questions about the Debtor’s property and then decide if he or she will abandon those assets. At that point, the abandoned assets are no longer property of the estate.
With respect to a Chapter 7 bankruptcy, as soon as the Trustee abandons his or her interest in the property, you are free to sell the home. If time is of the essence, your bankruptcy attorney can file a motion with the court requesting the Trustee abandon the property, but your attorney must demonstrate the sale will fail unless it is effectuated before your case is discharged, which is typically less then 60 after the Meeting of Creditors.
When determining if you can sell your home in a Chapter 13, the issues become significantly more complex due to the length of time a case is open, usually three to five years, and the nature of reorganization and the repayment plan.
As in a Chapter 7 case, the Debtor’s property remains the property of the bankruptcy estate, including the Debtor’s house or condo. The big difference is that the chapter 13 trustee shall have no responsibility regarding the use or maintenance of property of the estate, such as the Debtor’s home. As such, the trustee will have an interest in a home sale, and the debtor must obtain a Bankruptcy Court order approving the sale.
When drafting a motion to present to the court to allow a sale, the motion needs to assert the sale price, disclose the amounts of all liens and mortgages being paid off, and list payments to any professionals such as attorneys and real estate agents. The motion must be served on all parties who may have an interest in the sale, and if anyone files an objection within the 20-day deadline, the court will schedule a hearing on the motion. These motions are fairly common, and when they are done correctly, the court usually grants the motion without requiring a hearing.
