Chapter 13 Bankruptcy

• A Chapter 13 bankruptcy offers key advantages when it comes to house possession. Few home owners lose their homes when they file for a Chapter 13, which protects key possessions like houses and cars. However, a Chapter 13 also lasts much longer than the other primary option, a Chapter 7. A Chapter 13 requires the trustee of the bankruptcy estate to create a payment plan that debtors must pay into for up to five years before any left over debts are forgiven.
  
  

Selling a Home

• Traditionally, selling a home is an easy process. The seller contacts a real estate agent and lists the home for a particular price in the local market. In a Chapter 13, however, the home owner must first apply for approval from the bankruptcy court before listing the house. The court will examine the situation and how selling the house will affect the payment plan before making a decision. This occurs because the house is part of the bankruptcy estate for as long as it lasts.
  
  

Requirements

• There are several key requirements in the court approval process. For instance, the court will typically require an appraisal that shows the exact value of the house in the current market, useful for calculating how the house sale will impact the debtor's finances. The trustee must also release sales information to all creditors involved in the payment plan so they can also expect the change. When the purchase agreement is created, debtors must also submit it to the trustee for examination.
  
  

Considerations

• Selling a house in a bankruptcy will not necessarily make debts easier for debtors to bear and will not free up extra cash. The proceeds of the sale will directly to the lender that holds the mortgage for the house. If the house is worth more than the mortgage debt, any remaining cash from the sale goes into the payment plan and helps pay off other creditors. This may help end the plan early, but it will not give the debtor any direct funds to spend on other projects.