A debtor may sell real estate during the pendency of a Chapter 13 bankruptcy case. However, the seller must obtain a bankruptcy court order approving the sale of the real estate. In the event that there is a real estate sales representative or broker involved with the sale, the sales’ representative must be appointed by the bankruptcy court by way of a bankruptcy court order. At settlement, the order authorizing the sale must be presented to the closing agent.
Chapter 7
In a chapter 7, although very unusual, the trustee may sell the debtor’s real estate if the house has substantial equity. The trustee will only sell property if the sale provides substantial proceeds, that is sufficient to disburse $25,150.00 to the debtor. Thereafter, the trustee will disburse the balance of the proceeds to the debtor’s creditors. Any balance after payment to the creditors in full, will be disbursed to the debtor. This is explained in our section about keeping property in a chapter 7 bankruptcy.
Liens may be reduced and/or eliminated that will allow the trustee to receive additional funds from the sale.
A debtor may not sell their house during the case, unless and until the trustee determines that he/she is not interested in selling the property. A trustee will determine whether the property is worth selling based on the amount of equity in the property. A trustee that decides to not sell the property will file with the court a document called “Notice of Abandonment of Property”. This means that the debtor may keep or sell his own property. However, if the debtor sells the property during the case, he/she must still obtain the necessary court orders.
A chapter 7 bankruptcy case lasts approximately four (4) months from the time of the filing to discharge. After discharge, the case is complete. After completion of the case, the debtor may sell their house without the need for any bankruptcy court order. Therefore, a chapter 7 debtor generally waits until discharge to sell their house. Please note that the debtor may be required to show the “Notice of Abandonment of Property” notice at closing.
Chapter 13
In a New Jersey chapter 13 bankruptcy case, the trustee will never sell a debtors’ house, no matter the value. Based on various issues, a debtor may be permitted to eliminate certain types of real estate liens that will allow the debtor to receive additional funds from the sale. Typically, the real estate brokers will be paid from the sale’s proceeds, at settlement.
Each debtor, who owns property, may receive up to $25,150.00 if the sales’ proceeds, after payment of costs and liens, results in $25,250.00, or more. Any sales proceeds in excess of $25,150.00 will be paid to the creditors. Any remaining proceeds after paying the creditors in full, will be disbursed to the debtor. These matters are explained, in detail, in separate portion of this website.
At the time of the filing of the Chapter 13, a debtor files a plan that reflects the amount of their monthly payment to the trustee. The plan may include the debtors’ intention to keep their house and pay their mortgage. There may be a change in circumstances that allows a debtor to change their mind and sell their real estate. This is permitted, as the Chapter 13 laws are very flexible.
Generally, in a NJ Chapter 13 bankruptcy, a debtor is required to pay to the trustee all of their monthly disposable income over a certain time period. Consequently, as a result of the sale of the house, it is no longer necessary for the debtor to make payments to the mortgage company regarding that house. After the sale, the debtor may be required to modify their plan to reflect the sale, disbursements of the sale and the change in the monthly trustee payments. The trustee payments will be effected, in that the debtors’ monthly disposable income will change as a result of the elimination of the mortgage payment.
Contact an Experienced Bankruptcy Attorney in NJ
If you are considering filing for bankruptcy protection in New Jersey under chapter 7 or chapter 13 and are concerned about the sale of your home, you should contact an attorney. A NJ bankruptcy attorney familiar with the sale of real estate during bankruptcy proceedings will be able to provide answers and guide you through this difficult and complex process. Contact Robert Manchel, Esq. for a free consultation with a veteran bankruptcy attorney, or contact us online for an immediate response.