Life does not stop just because someone is going through bankruptcy. Ideally, the debtor’s life returns to normal after a bankruptcy case is filed. However, life does not always return to “normal” and debtors may be faced with many everyday problems.
What happens, for instance, if the debtor needs to move and purchase a home before his Chapter 13 bankruptcy is finished? Is it possible to purchase a home if someone is going through Chapter 13 bankruptcy?
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is considered a reorganization form of bankruptcy. The debtor works with the bankruptcy trustee to set up a plan to repay the qualified debts. This repayment plan period normally lasts between three to five years, and at the end of the period, any remaining unpaid debts are discharged.
Unlike Chapter 7 bankruptcy, the debtor continues to pay on certain debts, which allows them to keep certain property (ie: house and cars) during the pendency of the bankruptcy.
Can A Debtor Buy a House While in Chapter 13?
During Chapter 13 bankruptcy, it is possible for a debtor to incur secured debt, including a new home mortgage. In order to purchase a house during Chapter 13 bankruptcy, the debtor must first get permission from the bankruptcy trustee and court to approve their Motion to Incur Debt.
In fact, as soon as the debtor begins to even consider purchasing a home, it is important that they speak with their bankruptcy attorney before going forward. The attorney can advise the debtor on the procedures to obtain court permission for the purchase.
Step One: Obtaining Qualification
After finding a suitable home to purchase, the first step the debtor must take is to get qualified for the home loan amount. Some lenders do offer loans for individuals in the midst of an active Chapter 13 case.
In addition to normal lending criteria such as regular income and/or steady employment, lenders also may require that the borrower has been in the case, meaning he or she is actively repaying on debts owed in the bankruptcy, for at least a year. During this time, the lender wants to see that the debtor has been making his or her payments on time to the bankruptcy trustee.
Step Two: Requesting Approval from Court
As soon as the debtor is qualified for a home loan, he or she needs to notify his or her bankruptcy attorney. The attorney will need all of the information related to the home purchase and the debtor’s loan qualifications to submit a request to the court for approval.
This approval is normally requested in the form of a Motion to Incur Debt. Be aware that the court calendar may not have availability to hear the motion right away.
Hearings on motions can generally be scheduled in 30-40 days. It is for this reason that it is extremely important that the debtor not wait and to contact the attorney as soon as approval is given for the loan.
What The Debtor Needs To Prove
In order to receive approval from the court to incur debt for a new mortgage loan, the debtor needs to give information regarding:
- Need for and location of property to be purchased;
- The purchase price for the home;
- Amount and source of the down payment;
- Anticipated monthly house payment, including escrow for taxes and insurance; and
- Ability to afford the payment is provided.
The debtor will also need to show proof of current income, which includes the last three months paystubs. The debtor must also provide his or her resulting budget if the home loan were to be approved.
The court will evaluate the impact that approval of the loan will have on the current creditors in the case. One question will be whether the creditors will continue to receive the same payments under the plan or less money if the loan were to be approved.
If the creditors will not be harmed, normally the court will approve the request to incur the debt to buy a home. However, the debtor needs to show that he or she will be able to continue the Chapter 13 reorganization plan previously approved by the court. The court does not want to see that the new loan will burden the debtor and make it impossible for him or her to successfully complete the bankruptcy.
Contact an Arlington Bankruptcy Attorney for a Free Consultation Today
Only an experienced Texas bankruptcy lawyer can help you understand the processes and procedures of bankruptcy to ensure the best solution for your needs. Call the Law Office of Marilyn D. Garner now at 817.381.9292 for a free consultation to discuss how bankruptcy may help you.