Selling Assets While in Chapter 13 Bankruptcy

BankruptcyWhen a debtor files Chapter 13 bankruptcy everything they own becomes part of a bankruptcy estate.  In some jurisdictions the debtor’s property continues to be part of the estate until the bankruptcy case ends.  In other jurisdictions, such as in the Northern District of Texas and the Eastern District of Texas, the property automatically vests with the debtor upon confirmation of the Chapter 13 plan.  This means that the property no longer belongs to the bankrutpcy estate but goes back to the debtor after the confirmation order is signed.

Most debtors never know that all of this transferring of the ownership of property is ever occuring.  In most cases it does not affect the debtor in any way.  However, if the debtor wishes to sell or give away property that belongs to the bankruptcy estate then they have to get permission from the trustee or the court.  This means that in north Texas if someone wants to sell or give away their property before confirmation of their Chapter 13 plan then they have to get permission from the trustee.  If the trustee refuses to give permission or seeks to lay claim to any share of the proceeds resulting from the transfer then the debtor must file a motion to sell the property and bring the matter before the court.

Considering that the property of the bankruptcy estate vests with the debtor upon confirmation, it may be easier to wait until after confirmation to sell or transfer property.  However, it is important to read the confirmation order to see if it addresses transfers of property.  Some confirmation orders require the debtor to get permission from the trustee before selling their home after confirmation as well.  Usually this is a simple process.  The debtor’s attorney simply contacts the trustee asking permission to sell the property and if the trustee agrees then he will issue a no-interest letter, which states that they have no interest in the proceeds of the sale or transfer.

For more information about selling property while in a Chapter 13 bankruptcy in north Texas, contact a Richardson TX bankruptcy lawyer.