Monthly Archives: January 2021

Can I sell my home in a chapter 13 bankruptcy, and what are the steps?

Yes, you can. And yes, it’s complicated.

(video link on same topic at bottom of article)

On the day you file bankruptcy, all of your property becomes part of the bankruptcy estate. This means that if you want to sell or refinance your home, you need court approval. You also need trustee approval, because the trustee is watching over your estate for the benefit of your creditors.

So if you want to sell your home, just remember that it’s a process.

  1. Let your attorney know before you list it. Otherwise, you might be making a huge mistake. (see below).
  2. Have your realtor speak with your attorney. (Which they’ll do anyways, because realtors are commission-based, and they are a wee bit pushy. No, really!). The realtor will need to send your attorney the listing agreement.
  3. Let the buyers know that it will probably take 30-45 days AFTER the offer before you receive court approval to sell.
  4. When you accept an offer, send it to your attorney immediately. He’ll also need a current mortgage payoff, and any related closing documents.
  5. Your attorney files a Motion to Approve Sale of Real Property, Application to Employ Realtor, and Request for fees. (see below).
  6. 25 days-ish after filing the Motion, the court approves your motion. Now you can sell.

Now let’s get into the nitty gritty.

Let your attorney know first. You had better run the numbers with your lawyer to see if it is a good idea. Remember that you probably low-balled the price of your home in your original bankruptcy filings, and then you used your state exemptions to protect any exposed equity. In most states, that equity is all you get. So let’s say you exempted $50,000 of equity in your home 2 years ago when you filed the 13. Now you want to sell, and after realtor’s fees and closing costs, there will be $100,000 of equity coming to you. Maybe not. Some trustees will very successfully argue that any equity above your exemption goes to pay your creditors a little extra.

You may not get all of that equity. If you sell in an open 13, there’s a very strong chance that your creditors will see more of that money that you’d like.

It’s also nice to let your attorney know right away so that he can start billing you for his time. Yes, you’ll have to pay extra fees. Selling the home is not a normal part of your chapter 13 fee agreement, and most lawyers don’t work for free.

Have your realtor speak with your attorney. Lawyers don’t like this. I’m assuming that realtors hate talking to lawyers. But it has to happen. This way your attorney can dash the realtor’s hopes on timing and maybe any special arrangement you were talking about. It’s also important to note that your attorney will have to file an Affidavit of Disinterestedness on behalf of your realtor. This Affidavit states that your realtor is not a family member (an insider). If they are, the court probably won’t approve their fees/commissions. This tends to make realtors very unhappy. Especially the realtor is your sister you were throwing a bone to.

Let the buyers know that it will probably take 30-45 days AFTER the offer before you receive court approval to sell. There are motions, notices, and timing issues to get court approval. Your realtor will tell stories of anecdotes they heard at a realtor conference in Michigan 3 years ago about getting court approval more quickly with an emergency motion. I have also heard of this happening, but it is rare, it probably doesn’t apply to you, and it will cost you a lot more in attorney’s fees.

When you accept an offer, send it to your attorney immediately.  The more papers you provide, the better. At a minimum, your attorney will need the signed/accepted offer, the listing agreement, your mortgage payoff information, any other closing documents, and anything else you think might be relevant.

Your attorney files a Motion to Approve Sale of Real Property, Application to Employ Realtor, and Request for fees. Attorneys generate a lot of paper. I assume that the faithful attorneys of the Sierra Club cry every time they file a new memorandum and wipe out a small forest. Bankruptcy is no different. You need court approval to sell the home. You need trustee approval. All of the creditors receive notice of the terms of the sale, and each and every one of them has the opportunity to object. Your realtor needs to be approved, and more importantly for them, their fees/commissions need to be approved. The closing costs need to be approved.

Most important of all! (at least to your bankruptcy attorney) is that your attorney needs to get paid. This is a lot of work, and your attorney will bill for his work. Expect to pay at least $750+ for a simple motion. Normally, you’ll pay these costs from the closing costs, or even as part of your ongoing monthly chapter 13 payments. But it is complicated and obnoxious work, and your attorney will be submitting a bill to the court.

25 days-ish after filing the Motion, the court approves your motion. These things are complicated and they take time. If no one objects, you could get court approval in 25 days. But, the trustee and/or creditors may object. You may have to have one or more hearings. The judge may take a week to sign the order after the hearing. Be patient. It takes time.

That being said, if you can sell your home, pay your creditors off in full, and close out your chapter 13 bankruptcy, it’s hard for anyone to object.

“This call is from the department of social security…” No, it’s not, and it is not because you filed bankruptcy.

So this morning I received two phone calls in a row, from a local number, with a recording advising me that:

“This call is from the Department of Social Security Administration. The reason you have received this phone call from our department is to inform you that we just suspended your Social Security number because we found some suspicious activity.”

It’s a scam. I know it’s a scam because it sound ridiculous on the phone, and because I get a couple of calls a week from clients who are suddenly frightened because the timing of the call is suspiciously close to some kind of event in their bankruptcy case. But don’t worry, it’s a scam.

The FTC has this wonderful quote on its website:

The real SSA will never call to threaten your benefits or tell you to wire money, send cash, or put money on gift cards. You can’t believe the numbers on your caller ID. Scammers can easily fake those.

The only suspicious activity I’ve done in the past week is taking a nap between two alligators. And to be honest, I’m not sure they were even real!

What will happen to my 2021 $600 (or $2,000) stimulus when I file bankruptcy?

Nothing. It’s yours to keep. Use it to pay your bankruptcy attorney.

I had to edit this post today (January 8, 2021). A friend of mine who happens to be a very academically gifted bankruptcy practitioner, read the new bill carefully. The new stimulus payments are NOT property of the bankruptcy estate. This means that a bankruptcy trustee cannot take them from you.

Originally, Congress forgot to exempt (or protect) the stimulus money from the bankruptcy trustee. When funds are exempt, they are protected from collection by the trustee. For example, if you receive social security benefits each month, these funds are exempt. The trustee cannot take your bank balance of social security benefits and use them to pay creditors. Your stimulus money is not exempt.

None of the chapter 7 or chapter 13 trustees are going to require you to turn over your stimulus money to the bankruptcy estate. This means that you can file bankruptcy today, receive your stimulus tomorrow, and the trustee will not take it from you.

That being said, if you file bankruptcy before you spend and receive your 2020 tax refund monies, you will lose those monies. See here: How can I protect my 2019 tax refund if I file bankruptcy in 2020?

This means that you CAN file bankruptcy before you receive the stimulus money, but you had better wait to file bankruptcy until AFTER you have received and spent your tax refunds.

Here is the text for the “Consolidated Appropriations Act, 2021” aka The Covid-19 Economic Relief Bill.