Trustee Permission to sell house

[brit929]

I have 2 years left on my Chapter 13. I very recently jointly inherited a house with my brother.My question is do I need to get the Trustee’s permission to sell the house ? I had to hire an Estate attorney in NC last week to handle my Dad’s estate and she said as soon as the house is transferred into our names we can sell it. I asked her about getting permission from the Trustee and she said I didn’t have to. I want to find out from bankruptcy attorney if that is the case but I am waiting on paperwork regarding the house before I contact the bankruptcy attorney again. I know they will let me know for sure but really would like to know now. Thanks!

[justbroke]

You should inform your bankruptcy attorney and you should seek approval from the court. This is because a section of the bankruptcy code reads that any property acquired during the pendancy of a Chapter 13 is part of the bankruptcy estate. Since this newly acquired property is "real" property, it would likely require permission to sell.

For certain, ask a bankruptcy attorney and not a probate/estate attorney. You are in a Chapter 13 which is different than if you were in a Chapter 7. Even in a Chapter 7 you would, at minimum, notify the Chapter 7 Trustee if this occurred within 180 days of filing. In a Chapter 13, that notification extends throughout the life of the Chapter 13.

Your best action is to notify your attorney. Your attorney will then notify the Trustee that "newly" acquired property is now in your bankruptcy estate. Your bankruptcy attorney will almost certainly reach out to your probate/estate attorney.

This may be different if you're in a different appeals circuit than the 4th Circuit (Virginia). The seminal case, which set the most recent precedence, is Carroll v. Logan, 735 F.3d 147 (4th Cir. 2013) While the case talks about the inheritance being property of the estate and subject to distribution to the creditors, I mention it that any inherited property is property of the estate.

[skyoumans]

I live in NC and they told me I would have to put my house up for sale and when I find someone to purchase...I would need to schedule closing date out 6 weeks because they have to approve it first. Th people purchasing would have to be patient.

[brit929]

So I finally got the paperwork for the house and forwarded it to my bankruptcy attorney. She said I would need to file an amendment with the court and it would take 30 to 45 days to approve it. If the house sold for the tax assessment my brother and I would each get $39000 and I would have to give all to the trustee except for $3200.00 I asked if it would shorten my remaining 2 years and she said no because I would have to pay 100% but I am in a 48 % payback. My next step is to list the home and the real estate agent I contacted was eager and said houses are selling quickly in that area especially since it is on an acre of land. When she looked at it she wasn’t as eager because she said manufactured homes are harder to sell.I have a gentleman that owns the home next door to my Dad’s and he is interested in purchasing for his mother but he wants to put $30000 down and the remainder of $48000 would be paid off at $1000.00 per month. So I am not sure which would be better for me to do as far as my bankruptcy goes. My attorney said she thinks the trustee would approve either plan.

[shipo]

brit929, unless I'm missing something, it sounds to me like the sale to your neighbor would be preferable. Why? My gut tells me that would pan out something like this:

• Sell the house, you and your brother pocket $15,000 each.
• You cut the deal with your Trustee to give him some or all of that fifteen grand.
• Your deal with the Trustee would also include some or all of the $500 per month the two you will be splitting.
• The thing is, if I remember correctly, you only have ~24 months left on your Chapter 13, and the payments from the neighbor will span 48 months. Said another way, once your Chapter 13 ends, you'll have 24 more months to collect the $500 (totaling $12,000) and do with it what you may.

I'm sure justbroke will chime in with the real truth of the matter, so stay tuned.

[brit929]

Thanks Shipo! That does make sense 😁

[justbroke]

shipo I think that's a reasonable approach but...

The thing is, if I remember correctly, you only have ~24 months left on your Chapter 13, and the payments from the neighbor will span 48 months. Said another way, once your Chapter 13 ends, you'll have 24 more months to collect the $500 (totaling $12,000) and do with it what you may.

I don't think the Trustee will feel this way about any of the property of the bankruptcy estate (the future payments) extending beyond the end of the commitment period of the Chapter 13 plan. The money is due to the estate in the present and not the future. That's not to say that the Trustee couldn't fashion something, but that something could get just as complex.

I'm also not the Chapter 13 Trustee and haven't had to deal with an installment sale -- which is what you describe -- which is really pulling in proceeds for the bankruptcy estate. In a Chapter 7, the trustee would just keep the estate open until everything was collected. It may be more difficult or more complex in a Chapter 13. Maybe despritfreya has seen "installment sales" in a Chapter 13 where the installments are technically (or mostly) non-exempt property of the bankruptcy estate.

It's interesting, though.

[despritfreya]

This is a tough one. You have (or will have) a 50% interest in a non-exempt asset. Your interest, in a Chapter 13, is property of the estate. If you want to keep your interest you have to modify your Plan to provide the value of that interest to your creditors within the remaining 60 months.

Once titled to you and your brother, the bankruptcy trustee (or you - in this situation) can sell the property (your interest and that of the co-owner) pursuant to 11 USC 363. You obtain an offer, file a Motion and let the Court determine if the offer is the “highest and best offer” available.

Can the highest and best offer include a carry-back with payments that will exceed your 60 month Plan? Maybe. . .but my guess is the Court and the Trustee will want a clean sale and not want to take the risk of a default in payments for the carry-back. If a carry-back sale is approved then, I would imagine, your discharge will be held up until all payments are received. You will still be required to complete your Plan payments within 60 months. Your case will just linger on until the non-plan payment asset is fully accounted for.

Discuss with your attorney. A clean sale makes much more sense even if the final sale price is a bit less than the offer with the carry-back. The question is “what is the highest and best offer”.

Des.

[brit929]

Thanks JB I really do appreciate the advice. It is so confusing. I don’t want the house to sit on the market for a long time but I also don’t want to mess up my Chapter 13. I have to go back to N.C. this weekend so I am going to see what the neighbor wants to do for sure and then let my attorney know so she can approach the trustee.

[brit929]

Just saw your reply Des.i really don’t want to have the discharge held up longer than my 60 month plan. So it looks like a clean sale would be best. The original owner that sold it to my Dad was nice enough to defer the mortgage payments s until the house is sold ($6500 remaining on mortgage) I just don’t want it to be on the market too long so I don’t have to make mortgage payments on that too and he doesn’t have to wait . What about renting it out?

[justbroke]

What about renting it out?

I don't think a Chapter 13 Trustee will be interested in renting. In some cases, a Chapter 7 Trustee may be interested in rent until a property was sold. The fact remains, as Des succinctly put it, that you have a 50% interest in an asset. The Chapter 13 Trustee will want the asset sold or somehow recover your (non-exempt) portion of the 50% in value. That could mean either your sibling buys out your 50% interest or an actual sale of the property with 50% of the net proceeds going back into your Chapter 13 bankruptcy estates (less any exemptions or allowed negotiated amounts).

The circumstances under which the property will sell is what I would call a "fire" sale. You are likely to receive less than what the market normally would have yielded under normal circumstances. The extra red tape involved, court approval of the sale, will drive down the final price, but it may allow for a quicker sale.

[bigdog6464]

With all due respect, I think you guys might be missing an important distinction in what is considered property of the estate. justbroke is correct that in a Chapter 13 any property acquired during the pendency of the Chapter 13 becomes property of the estate. However, 11 USC 348(f)(1) provides when a case under chapter 13 is converted to a case under another chapter, property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion. So, if you are eligible to convert your case to a Chapter 7, property of the Chapter 7 estate is ONLY that property that you owned at the time of filing your case and since your date of filing does not change when you convert from a 13 to a 7, that means that you would have to have become entitled to inherit that house prior to filing your Chapter 13 or within 180 days after filing. If it has been more than 180 days since you filed the 13 and you convert, the house is NOT property of your Chapter 7 case. The only exception to this is if you have converted your case in bad faith. If something has happened and you can show you no longer can afford the Chapter 13 payments, then it is not in bad faith. I would suggest asking your attorney about section 348(f)(1) before I would sell and turn over anything to the 13 trustee.

[brit929]

Thank you bigdog6464. I will definitely ask my attorney. I don’t think I am eligible to convert to a Chapter 7. My income has somewhat reduced since in the last few months and things are a little tighter but not enough to convert to chapter 7. Not able to get any overtime like I did before and I claimed that when I filed the Chapter 13 😩 it is looking like I will have to put it on the market unless the neighbor who is interested in it can pay it off in 2 years which he did say he would like to do. One more question if you guys don’t mind...The first attorney I spoke with at my attorneys office said something about a trust. I had sent all the paperwork that the gentleman sent to me who financed the house for my Dad. On the letterhead it says his name and his wife’s name and then it says “living trust”. He said once the Mortgage balance was paid the deed of trust and promissory note would be marked “satisfied” and cleared with the county register of deeds. The first attorney I spoke with looked over the paperwork and said my Dad had it in a trust ( not sure if that is the correct terminology) I told him my Dad didn’t even have a will so I doubt that he created a trust. How do I find that out and would that help?

[justbroke]

With all due respect, I think you guys might be missing an important distinction in what is considered property of the estate. justbroke is correct that in a Chapter 13 any property acquired during the pendency of the Chapter 13 becomes property of the estate. However, 11 USC 348(f)(1) provides when a case under chapter 13 is converted to a case under another chapter, property of the estate in the converted case shall consist of property of the estate, as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion.

You're absolutely right and I didn't consider conversion as an option because the debtor's ability to pay was not mentioned. I personally used 348(d) and (f)(1) to specifically do a similar thing in my converted case. Mine actually went into an adversary in which I won. The case which is referenced, for Florida at least, is In re Sandoval. Unless the Chapter 7 Trustee can convince the court that the conversion was in bad faith, the debtor would get the clean conversion... at least in Florida.

The only other reason a debtor wouldn't go down the conversion path is that they need (needed) the protections of the Chapter 13. Conversion could cause headaches for the person with IRS tax debt which could have been discharged in the Chapter 13. Ask me about how that comes back to haunt you.

The first attorney I spoke with at my attorneys office said something about a trust. I had sent all the paperwork that the gentleman sent to me who financed the house for my Dad. On the letterhead it says his name and his wife’s name and then it says “living trust”.

I wonder if what they looked at was the Deed of Trust or Deed of Mortgage (the title) which shows it in a living trust. I don't think it would matter at this point whether it was irrevocable or not since both have passed. I had an issue with a living trust as well but our issues were that for 20 years, the deed stayed "titled" in the name of the trust after the last part to the living trust passed away -- what a mess. It reads as though the property is going to transfer to you and your sibling without any issues. You can have a trust without a last will and testament. There are advantages to a living trust when you want property to pass without probate.

I never offered my condolences on your loss, and I do now. I despise probate and all the loose ends that need to be managed upon a loss. I hope that you are getting through this. I wish for you that this goes smoothly and it reads, at least, that your sibling isn't too upset about the bankruptcy "interference" (of sorts).

[brit929]

I really do appreciate the wonderful advice JB and your condolences. You all here have been so helpful. I was feeling really overwhelmed but you have made things much clearer. I spoke with my Dad when he was in the hospital and said we needed to make sure we did his will when he went home. He said he wanted the house to go to me because my brother did not have a relationship with him but my Dad went to rehab for less than 24 hrs and passed away. My brother lives in Canada so he can’t help and he is just going to have to deal with what I have to do to make sure I do everything right. This has made me realize that I need to do a will for my kids. I thank you for putting up with all my questions and once again for all of the helpful advice 😊