When Selling Your House In Chapter 13, Timing Is Everything

If you’re in an active chapter 13 case, or contemplating a filing, you may have your eyes on the potential sale of your real estate down the road. The timing of your decision is critical.

In recent months, I’ve had a number of people come to my office with a real estate deal on the verge of closing but a foreclosure sale looming within days. Filing a Chapter 13 bankruptcy on behalf of my client wouldn’t be so difficult but for the fact that the sale is scheduled to close within the next week or so.

Not so fast. Under the Federal Rules of Bankruptcy Procedure Rule 6003, the court is not allowed to enter an order giving you permission to sell your real estate within 21 days of the filing of your case. This may not sound like a big deal, but under some circumstances it could be a real deal-breaker.

Frequently, neither the potential buyer of the real estate nor the real estate broker are aware of the fact that my client is so close to sail by the lender. The foreclosure itself will show up on the title report, but there’s no way to tell just how far along in the process to wonder is.

Needless to say, nothing ruins a real estate closing quite like a foreclosure sale that takes place before the new buyer can sign on the dotted line.

That’s not to say that chapter 13 still isn’t a good move for those people who are nearing foreclosure but also pending sale of real estate. Rather, it comes down to communication between the current homeowner and the rest of the parties to the transaction. You want to make sure that you let the buyers as well as real estate brokers and other parties to the transaction know that you’re about to file for Chapter 13; if you don’t, they are sure to suspect shenanigans on your part.

The it’s also useful to note that once you file for Chapter 13 you’re not going to be able to good work closing table to sell the property without court permission. That means that if you have a closing scheduled when your bankruptcy cases filed, you’re not going to be able to make it. Often, the contract for sale of real property is going to specify that they are our monetary penalties in the event that a closing doesn’t occur by a specific date. Getting the buyer in the loop with respect to your decision to file a Chapter 7 case is going to pave the way for adjourning that closing without having to pay more money because of the delay.

Jay S. Fleischman is a bankruptcy lawyer who also helps people fight back against creditor harassment after bankruptcy.