Getting a Mortgage While in a Chapter 13 Bankruptcy

Chapter 13 debtors need bankruptcy court approval to buy a house.

Some debtors want to purchase a house while they are still in bankruptcy. Incurring new debt, such as a mortgage, requires approval from the bankruptcy court and trustee. Getting a mortgage is possible if the debtor has demonstrated the ability to fulfill all of his obligations in bankruptcy and taking on that type of debt is financially feasible. Retaining information about how a mortgage could affect the bankruptcy case is advisable before making any decisions.

Trustee Payments

Trying to obtain a mortgage while in bankruptcy requires fiscal discipline and strong debt management skills. Often, mortgage lenders want to verify that all of the trustee payments have been made on time before granting approval for a loan. Contact the bankruptcy attorney or the trustee to request a transaction history of all trustee payments made since the inception of the case. Sometimes debtors are able to access that information on the trustee's website and print it out. Forward that document and any other information the mortgage lender needs to determine approval of the loan request.

Mortgage Documents

Ask the mortgage lender for a document that states the pre-approved loan terms. Request the real estate agent provide the HUD-1 statement. The bankruptcy court and trustee need to review those documents when deciding whether or not to approve the request to purchase the home. The mortgage lender's paperwork should include the total amount of the loan, the estimated monthly payment amount, the interest rate and the length of the loan. The HUD-1 needs to provide the property address of the home that will be purchased, the purchase price, the amount of the down payment and a breakdown of all the fees.

Bankruptcy Petition

Fill out the portions of the bankruptcy petition titled Current Income of Individual Debtor(s) and Current Expenditures of Individual Debtor(s). The petition is available on the state's bankruptcy court website and the U.S. Courts website, or the bankruptcy attorney can provide the documents. File those portions of the petition with the bankruptcy court. Submitting updated information regarding income and expenses will let the trustee know if the mortgage is affordable.

Motion to Incur Debt

File a Motion to Incur Debt with the bankruptcy court. Include the HUD-1 and pre-approved loan terms document as exhibits or attachments to the motion. Send a copy of the motion and additional documents to all interested parties in the bankruptcy case. The trustee may file an objection to the motion if he believes obtaining the mortgage is not in the best interests of the debtor and the bankruptcy estate. The trustee does not want the mortgage to jeopardize the debtor's ability to successfully complete the bankruptcy case.

Court Order

If the motion is granted by the bankruptcy court, the judge will sign an order stating the court's approval. Submit the signed court order to the mortgage lender and the real estate agent. Carefully consider whether or not to proceed with the purchase of the house. The mortgage is not dischargeable since the debt was incurred after the bankruptcy case started. The debtor is personally liable for paying off the mortgage as soon as the loan is acquired.

References

• U.S. Courts: Chapter 13 Individual Debt Adjustment
• U.S. Courts: Bankruptcy Forms
• Chapter 13 Trustee Northern District of Alabama: FAQs
• Cornell University Law School: Federal Rules of Bankruptcy Procedure