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.

Have bankruptcy filings gone up or down because of the 2020 pandemic?

Down, so far down! (Utah is down 32% from last year).

You would think that with so many people out of work (or underemployed), that bankruptcies would be going through the roof. However, everyone is waiting and holding their breath right now. In fact, they’ve been holding their breath since about March of this year. We are at a 14 year low!

According to a blog article from Epiq Aacer, Chapter 13 filings are down 45% from last year, and Chapter 7 filings are down 21% from last year. See: https://www.aacer.com/blog/november-bankruptcy-filings-hit-14-year-low

But why? We have over 4 million mortgages in default (delinquent) here in the U.S. See: https://thehill.com/opinion/finance/516032-the-coming-wave-of-defaults Over 7 million renters are delinquent as well.

We also have over 12.6 million unemployed in the U.S. See: https://www.marketplace.org/2020/10/12/how-many-people-are-unemployed-right-now/

But no one’s filing bk.

One big reason why bankruptcies are down is because we’ve had the mortgage and eviction moratoriums, which were actually just extended to January 31, 2020. See: https://www.housingwire.com/articles/fhfa-extends-foreclosure-and-eviction-moratorium-to-jan-

According to one our bankruptcy judges here in Utah, the reason we’ve seen bankruptcies decline is because potential debtors haven’t been pushed into filing yet. People don’t file bk until they need to. And most people won’t need to until they suffer some kind of critical life event, like a foreclosure/eviction, a garnishment, or a repossession.

This means that we’re still waiting. Once those moratoriums end, we’re going to have a flood of bankruptcies. Until then, I’ll keep staring at the phone trying to make it ring.

I just received my chapter 7 bankruptcy discharge. Is my case done?

Kind of, but not really.

As for done-ness, your credit starts to rebound once you get the discharge. Your debts have been discharged, and you’ve gotten the relief you were seeking in bankruptcy. As far as your debt is concerned, yes, you are done.

As for being fully done, no. The bk trustee still has to administer the estate. Now what does this mean? I had a client ask me recently, and here’s what I told her:

Yes and no. (ha, I love lawyer answers).
You will get your discharge on October 27, and at that point your credit will start to rebound. However, the bk trustee will keep his half of the case open to see if your tax refunds are large enough for him to take. Once he determines that, he will either take the refund, or abandon it, and then the case closes out.

You can look at the end of your bankruptcy case has having two distinct parts: 1. the discharge, and 2. the trustee’s final report.

  1. the discharge — You receive your discharge about 3 months after you file.
  2. trustee’s final report — the bk trustee needs to determine if you have any assets worth taking (that aren’t exempt), like upcoming tax refunds, too much equity in your home, or too much equity in one of your cars. If there is enough there (usually at least $2,000 worth), then the bk trustee will take those assets and pay out a small percentage to each of your creditors.

The real problem comes down to timing. You get your discharge 3 months after you file. The final report may not close out your case until 2 years after you file. Yes, 2 years.

There is NO good way to tell the bk trustee to hurry up. Here’s a fun story about my feeble attempt: I reminded the trustee in an email that he had been sitting on my client’s tax refund for almost 3 months. He sent me a very unfriendly email, laced with expletives no less, saying that he might keep the case open up to the 2 year mark just to teach me and my client a little patience. That was the last time I tried to gently remind a trustee to do his job.

Yes, some of your attorneys will say that you can file a motion to force the trustee to administer the estate or abandon it, but those attorneys like to pick unnecessary fights and anger the trustees for years to come.

Can I add new debts to my bankruptcy case if they happen while it’s open?

Short answer: No (and maybe…).

The long answer is bit more complicated.

Basically, if the debt was incurred (happened) before you filed the bankruptcy, then you can add it to your open case. If the debt was incurred after you filed, then you cannot. (but see below).

When you file a bankruptcy case (7 or 13), you list all of your debts for things that happened up to the moment of filing. So if you are in a car accident as you drive to your attorney’s office to file the paperwork and get rushed to the hospital, you can add those bills, because they happened before you filed the bk.

However, if you have a follow-up with the doctor after you file bk, that follow-up appointment is not covered. It happened after the bk was filed.

On the other hand, let’s say you file bankruptcy, and then receive some collection bills from creditors for things that happened before the bk was filed. You can add those to your current case.

Even more complicated: you visit the doctor before filing, but he forgets to bill you until after we file. This IS covered, because the actual visit/service occurred before the bankruptcy was filed.

It all depends on when the debt was incurred.

With my clients, we try to list every creditor we can. Then we file the case. After filing, I tell them to make a stack of any collection notices they receive after we file. About 2 months after filing, we compare this stack to the list of creditors in the case. If there is someone we forgot, we add them.

Exception for new debt: That being said, if you are in a chapter 13 and incur new debt (like a huge hospital bill), you can convert your case to a chapter 7 and add the new debt. However, this is complicated enough that it deserves its own post.

Do I need to list my health insurance provider in the bankruptcy as well as the hospital?

Generally, no.

When we file bankruptcy, we list all of your creditors (people you owe money to). We even list potential creditors (like that landlord who let you out of your lease early with a sly smile, promising not to sue you). That being said, we don’t list everyone under the sun.

Medical bills are very common in bankruptcy. Whether it’s a chapter 7 or a chapter 13, you want to list the hospital where the medical debts were incurred, as well as each individual doctor, doctor’s office, and ambulance company involved in giving you an outrageous amount of debt.

However, your health insurance provider isn’t one of your creditors. They won’t care about your bankruptcy. They won’t write off your various debts to hospitals in their system because of your bankruptcy. We don’t need to list them.

Now it’s a different story if you are behind on insurance premiums. If you are behind and have an outstanding bill with your health insurance, then yes, we list them. Not for the medical bills and medical debt, but for the insurance premiums you owe them.

Of course, if you’re in doubt, list everyone. It’s better to be safe than sorry.

Do we lose all the equity in our home if we do not reaffirm the mortgage in bankruptcy?

No, it’s still your home and your equity. The only thing that reaffirmation does is keep it on your credit.

I had a client contact me today because Wells Fargo never filed the reaffirmation agreement that we signed 6 months ago. She was worried, because it sounds like a big deal. Thankfully, it’s really not (and probably for the best).

Here is my email response to her:

what if they didn’t reaffirm?


Robert Payne robertspaynelaw@gmail.com
3:10 PM (2 minutes ago)
to XXXXXX


I know that they’ll get back to you next week, but this is going to be stewing in your mind all weekend.


When we filed the bk, we filed a Statement of Intention stating clearly that you wanted to reaffirm. After we file that, they are supposed to prepare a reaffirmation, send it to us, we sign it, send it to them, they sign it, and then they file it.


So what happens if they do NOT file it?


Not much.


The mortgage will not report on your credit, which is bad. But, you can refinance with another lender if you want the credit reporting.


Otherwise, it’s still your home. Every payment you make pays down the mortgage, and you do get credit for it. If you pay off the home, you get the title. If you sell the home, you keep the equity because you are on title.


The only problem with no reaffirmation is the credit reporting.
https://robertspaynelaw.com/myutahbankruptcyblog/2014/02/12/what-are-the-pros-and-cons-of-reaffirming-my-mortgage-in-bankruptcy/

Robert