When an individual files a Chapter 13 Bankruptcy case, all of that person’s property is legally controlled, or “under the jurisdiction of,” the United States Bankruptcy Court. The Debtor gets to keep his or her legal ownership of that property, but it cannot be sold, transferred, or in any way divided without first obtaining the approval of the bankruptcy court.
The first step in the process is to find a real estate agent who has experience selling properties in bankruptcy. Your attorney can provide a referral if needed. The Bankruptcy Court must then approve the employment of the real estate agent and the agent’s employing Brokerage ( such as Remax, Berkshire Hathaway, Keller Williams, etc) This approval is obtained by your attorney, who will file an Application to Employ.
Once the real estate agent and brokerage company are employed, the listing can move forward on the multiple listing service. As a general rule, the property’s target sales price should at a minimum be as much as the County’s tax assessed value. The Bankruptcy Court will most likely deny approval for sale of a home that is well below market value, because this would be prejudicial to the creditors.
Once there is a buyer for the property, the Purchase Agreement must state that it is “subject to approval by the United States Bankruptcy Court.” The Purchase Agreement should then be sent to your bankruptcy Attorney. The Bankruptcy Attorney will then file an application with the Court for legal authority to complete the sale of the property.
Once the property sale goes to closing, the title company will need a copy of the Bankruptcy Court’s Order approving the sale. The sale proceeds will be distributed in the normal course of legal priority, with any mortgage(s) or lien(s) recorded against the property being paid first, and then the net sale proceeds disbursed. The net sale proceeds can only be paid to the Debtor to the extent of any available exemptions claimed in the bankruptcy schedules at Schedule C. In 2019, the State of Alabama has a homestead exemption of $15,500.00, subject to a small cost of living increase every three (3) years. This means if there are joint debtors, who jointly own ( and sell ) the real estate, the combined homestead exemption on the net sale proceeds would be $31,000.00 in 2019. The balance of net proceeds after deduction of the available exemption(s) has to be paid over to the Chapter 13 Trustee to be distributed to the creditors. If there are funds left after distribution to creditors, then those funds are payable to the Debtor.
Selling a home without the proper approvals by the U.S. Bankruptcy Court can cause serious problems and can result in the dismissal of your Chapter 13 Case. You should never attempt to sell an asset during your Chapter 13 case, or sign any contractual agreements, without first discussing it with your attorney.