Bills and debts can pile up quickly, but so can unpredictable life circumstances — it’s not uncommon for Texas to file for bankruptcy because they are struggling to cover all their payments.
One strategy some people use to get out of debt is selling their house, but what if you have already filed for bankruptcy? Let’s discuss the process of selling and buying a house while in Chapter 13 Texas bankruptcy procedures.
What Is Chapter 13 Bankruptcy?
First, there are two types of bankruptcies in the state of Texas: Chapter 7 (liquidation bankruptcy) and Chapter 13. While a Chapter 7 bankruptcy allows debtors to eliminate much of their debts, a Chapter 13 bankruptcy protection usually involves a payment plan that lasts three to five years to pay back a good portion of the debt, though some of it may be forgiven as well. This is known as a wage earner’s plan.
Also, a Chapter 13 bankruptcy will not stay on your credit report as long as a Chapter 7 bankruptcy, so it can benefit you more in the long run. In many cases, people file for a Chapter 13 bankruptcy when they are denied the Chapter 7 option, which is usually more appealing because of the debt forgiveness.
Can You Sell a House While in Chapter 13 Bankruptcy?
The short and easy answer is that you can sell a house even after filing for bankruptcy protection under Chapter 13. However, the bankruptcy process is far from easy, and many restrictions apply.
Bankruptcy selling should only be done after intense research, especially since many parties will be involved in the appropriate motions, including a bankruptcy judge, a real estate broker, your bankruptcy trustee, your creditors, and even the debt relief agency.
Bankruptcy Attorney Consultations
Since bankruptcy proceedings are regulated by many legal regulations, hiring a bankruptcy attorney makes sense as a first step. They can examine your financial status, including debts and income, to advise you on the best approach to selling the home.
The last thing you want to do is violate any legal requirements, so working with a bankruptcy attorney can help you avoid that issue. A free consultation can help you choose the best attorney for your situation.
Bankruptcy Court Approval
To sell your house, you will need to file a motion with the bankruptcy court. However, you will likely need permission from your bankruptcy trustee even before this step.
To obtain court approval, you will need to provide details about the proposed sale agreement, including the price, any outstanding debt to the mortgage lender, and other financial information. Your lawyer will help you understand what information is needed and how to sell your house in Texas during Chapter 13 bankruptcy.
Notify Your Creditors
Bankruptcy has a direct impact on all your creditors. They must know about your intention to sell the home, especially since the court will likely require that proceeds from the sale go toward repaying creditors for your unsecured debts.
Creditors can include the mortgage holder, credit card company, auto loan company, student loan lender, and more. This step will be required by the bankruptcy judge to move forward with the sale.
Statement of Sale
The court will need evidence of the sale’s completion, which means providing a statement of sale. This document will show the home’s final sale price and information about the buyer so that the court knows how much was made in the sale proceeds.
Accurate documentation is crucial when you are either selling or buying a house during bankruptcy, so keep records and receipts of everything that is involved in the real estate transaction.
What Happens if I Sell My House During Chapter 13 Bankruptcy?
The most important element of selling a house during Chapter 13 bankruptcy is using the proceeds to repay creditors. Usually, this is a condition that the court will require to approve the sale in the first place. Once the sale goes through, all profits will fulfill your debt obligations first.
Only if all your debt is repaid will you get to keep any of the remaining proceeds. Usually, sellers do not make enough money after the house sale to keep any of it since their debt is often higher, especially after closing costs. The more equity you have in the home, the easier it will be to pay back all creditors as part of your repayment plan.
Can You Buy a House While in Chapter 13 Bankruptcy?
Again, buying a home is certainly possible after a Chapter 13 bankruptcy filing, but it is much more complicated than buying a home in normal circumstances. You will need to go through a similar process to be approved for the purchase, especially since you are not benefitting from any profits to accelerate your repayment plan. Here are the important steps you should follow when buying a house in this scenario.
Consult With a Bankruptcy Lawyer
Again, you should never buy or sell a house without consulting a bankruptcy attorney first. If you skip this step, you could easily violate a legal standard that could get you in more trouble or prevent you from buying the home.
Many bankruptcy lawyers will offer a free consultation, so it is worth contacting some to get an idea of what is required to buy a house under the Chapter 13 bankruptcy code. Make sure you choose a lawyer who specializes in bankruptcy selling and buying for real estate.
Get Approval From the Bankruptcy Court
To buy a house this way, you need two levels of approval. First, you will need permission from your bankruptcy trustee, the individual responsible for monitoring your status and repayment plan. Second, you will have to receive approval from the bankruptcy court to move forward with the purchase.
Chapter 13 typically has very strict standards for taking on additional debt while a debtor is making regular payments. To be approved, you must have a strong history of making payments, a good credit score, and a regular income.
Meet Lender Requirements
Lenders already assess risk when giving money out to borrowers, and they tend to be even more hesitant if that borrower is in the midst of bankruptcy. They may place even higher requirements on a mortgage loan since you are paying back other debts.
This could manifest as a much higher credit score requirement, a lower debt-to-income ratio, or significant cash reserves. Whatever the standards are, the lender wants to make sure that you can make your mortgage payments as well as your other debt payments so that there is no danger of defaulting.
Selling Your House?
Although selling bankruptcy estate properties is much more complicated, it is still possible. It can also be a great way to quickly pay off some of your biggest debts. Selling a home is already difficult enough without the bankruptcy status attached to it, so you may have a hard time finding buyers.
Fortunately, A-List Properties can help you offload this property for a fair cash offer to pay off your debt obligations. We take all properties as they are, so you won’t have to spend any money on repairs or cleaning before the sale. We are BBB-accredited Texas cash home buyers with an A+ rating, and we can help you with a fast and smooth home sale.
The team at A-List Properties can close the deal within two weeks of you receiving our offer, so if you are in a rush to sell your home, we can make it happen. Some sellers may be hoping to sell before foreclosure proceedings take place, and a cash buyer is the fastest solution—there are no delays common for working with an agent. Contact A-List Properties today by calling (972) 526-7042 or filling out our contact form. We will quickly respond with a fair cash offer and take this property off your hands so you can enjoy the profits and pay off your debt.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
