Sale of property while in Chapter 13

[jerks2529]

I filed for Chapter 13 seven months ago and currently owe $1300/month to my creditors (approx. 78K total). I currently own a rental home that was exempt from the bankruptcy. It is completely paid off and worth approximately 200K. I would like sell this property and use the proceeds towards paying off my bankruptcy early and to give the rest to my son who is also having financial difficulties with an investment property that he owns (Owes 490K and property is worth 450K).
1) Is early discharge of my Ch13 possible in this manner?
2) In order to do so, would the bankruptcy court have to be the one to liquidate my property?
- How does this liquidation take place – do they sell at appraised value?
- What extra fees, if any, would be involved in the sale?
- Once the sale takes place, would I still be subject to capital gains taxes?
- If I found a buyer who would be willing to purchase the property at a higher price, would they be able to proceed with the sale with this buyer at the agreed to price?

Thanks for any advice you can give

[Flamingo]

Speak with your attorney. If you sell this property to pay off your Chapter 13, you will have to pay off your Chapter 13 at 100% and not at the confirmed rate at which you are paying. You will have to decide whether or not it is worth it in the long run so as to a financial situation like this, speak with your attorney and retain a good CPA.

[justbroke]

1) Is early discharge of my Ch13 possible in this manner?

As Flamingo wrote, you would need to pay 100% of the "allowed" unsecured claims in order to payoff your Chapter 13 early. This could be much more than $200K, especially if you did any cramdowns.

2) In order to do so, would the bankruptcy court have to be the one to liquidate my property?

No, but you would need to have permission by filing a Motion to Sell Property.

- How does this liquidation take place – do they sell at appraised value?

You sell it using your agent(s). The proceeds all go to the Trustee.

- What extra fees, if any, would be involved in the sale?

This is based on what you sell it for. Also, be advised that the Trustee will earn their fee too -- upon distribution of the money, not upon the sale -- so you'd have to factor that as well.

- Once the sale takes place, would I still be subject to capital gains taxes?

Yes!

- If I found a buyer who would be willing to purchase the property at a higher price, would they be able to proceed with the sale with this buyer at the agreed to price?

Yes, but only after you have permission to sell.

You really need to be talking to your attorney about what the TRUE cost of paying off the Chapter 13 will do. I don't know why you just didn't do this to start with?

[jerks2529]

conversion to chapter 7

Thanks for all of the input. Looks like I'll have to pay off much more than the 78K I currently owe on the terms of the bankruptcy (I have about 250K in unsecured debt).

One other option was that I was considering switching to a chapter 7. My story is actually a little more complicated. I did not mention above that I own two other properties (both in the dumps regarding equity). My understanding with chapter 7 is that the court will liquidate all of my assets (besides my primary residence) and use those assets to pay off any outstanding debts.

Will the court allow me to keep any equity that I've built up on the house for any reason (again, approx 200K)? I would like to help my son out with his mortgage issues.

[Pandora]

Will the court allow me to keep any equity that I've built up on the house for any reason (again, approx 200K)? I would like to help my son out with his mortgage issues.

You would get to keep only what your homestead / exemption is, which in VA, its only $5K - everything else will go to pay back your creditors.

"......Under Virginia law, each individual is entitled to keep up to $5,000 in either real estate or personal property. This can be equity in your home, your tax refund, mobile home, a second car, cash, or any other property that doesn't qualify for an exemption under a different rule of law. The homestead exemption is a once in a lifetime election. If you file bankruptcy again in 20 years, you may add to your homestead deed but, you may never exceed the total allowed ($5,000.00) during your lifetime."

Bigger question I have is how on earth did you manage to exempt a $200K rental home?

[Cristo]

I wonder if you could dismiss the ch 13 and sell the property and settle with your debtors yourself? That way you would not have to pay 100% to them, more like 25-35%......that might leave you with enough to help your son depending on what other debts you have. Food for thought.

[justbroke]

Cristo is right on the money. You should be doing an analysis of the "best" financial option for you!

[jerks2529]

thanks cristo...hmmm...if i dismissed ch13 and worked to settle with creditors myself, do you know if they would already be inclined to settle my debts at 25-30% (is there some kind of procedure for this in light of exiting ch13)? or could they come at me for 100% and I would need to negotiate balances down one by one? getting ready to schedule an appt with my attorney about this but wanted to gather as much info as possible. thanks again

[Cristo]

I do not know about that. I have read that they can come back at 100% (minus payments you made during the 13) and you have to start from there. I'm guessing it will not be quick and easy but you would be offering them a lump sum instead of little payments coming in over 5 years, so that may be an incentive. I had Discover down to 30% in about a 5 minute phone call when I was only 2 months behind. Also, your original creditor may have sold the debt to a collection agency for pennies on the $ so I think you could settle if you hold tough. Tell them you will have to convert to a ch 7 but wanted to give settlement a try. Banks need money right now.

I'm guessing you are trying to save your son from having to do a BK himself. That is admirable, but it might be in his best long-term interest (and yours) to file. I am still going through the confirmation process myself but I think in the long run I will be better off that I went the ch 13 route instead of blowing through all my money "trying to keep a bk off my record". Anyway, it's a personal choice of course.

Best of luck to you. Let us know what you decide.

[Cristo]

OK, one more thing. The banks already know that you are willing to file BK and that the most they will get is whatever percent they got in your 13. That should give you leverage in negotiations. They know once they no longer have the "not paying will ruin your credit" stick over you they don't have much.

Hopefully, your lawyer can work through these options with you. There have been people on here who said they were going to dismiss and settle, but they usually don't post any update on how that went......I wish they would......