Can You Sell a House While in Chapter 13 Bankruptcy?


If you are contemplating filing or have filed a Chapter 13 bankruptcy, you may have reached a juncture at which you are wondering whether it is possible to sell your home while you are in the midst of this type of bankruptcy case. Provided you follow the specific provisions of the U.S. Bankruptcy Court, and the directives of the bankruptcy trustee, it is possible to sell a house during bankruptcy proceedings.

Preliminary Matters

  • At the outset, if you are interested in selling a house during Chapter 13 bankruptcy proceedings, the most significant preliminary matter that you need to tend to is ensuring that there will be no loss associated with the sale. If you are upside down in relation to the value of real estate as opposed to any loan balance, absent some other compelling purpose for a sale, the bankruptcy court will never approve such a proposal to liquidate a house. You need to obtain an appraisal of the real estate from a duly certified appraiser.

    Before you place the real estate on the market for sale, you have to obtain the permission of the court (or the trustee) to take this step. Depending on the preliminary orders of the court in a particular case, the trustee may have authority to approve placing a house on the market for sale. If he or she does not have this express authorization, the matter will need to be approved by the court itself.

Marketing the Real Estate

  • Once approval has come from the bankruptcy court (either through the judge or the trustee), you are able to put the house onto the market for sale. You may be called upon to provide the trustee with regular updates on the status of your efforts to sell the property. However, in most other ways, the marketing and the sale of the real estate will proceed along lines similar to what is done in a more traditional sale when the bankruptcy court is not involved.

    There are a couple of major differences when a house if being sold in bankruptcy, however. First, the contract for sale must contain a clause that sets forth the fact that you will need to obtain approval from the bankruptcy court for the proposed sale before the closing can be held. Second, any proceeds from the sale above and beyond the amount used to satisfy any outstanding mortgage loans or liens on the property is to be made payable to the trustee of the bankruptcy court.


  • Once a purchaser has been found and a contract for sale has been executed, you will need to return to the bankruptcy court for approval. Typically, a hearing will be held and all of your creditors will be notified. They will have the opportunity to object to the proposed sale if they so desire (and if they have some sort of legally recognized reason for lodging such an objection).

    Following the hearing, the court will either approve or disapprove the sale. Provided no creditor lodges a persuasive objective, and provided the contract for sale was negotiated at arm's length and is for a reasonable price, the court will approve the proposed sale.

    After any proceeds from the sale are paid to the bankruptcy trustee, he or she will then distribute this money to your creditors in proportion to the payment scheme that is developed pursuant to your existing Chapter 13 plan. You are not likely to see any of the money from the sale of a house while in bankruptcy unless all of your approved creditors' claims are fully satisfied.


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