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Selling a Home After Chapter 7 Bankruptcy

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  • 09-04-2014, 07:11 AM
    KachinaBean
    Selling a Home After Chapter 7 Bankruptcy
    My question involves bankruptcy in the state of: Michigan

    I have an elderly uncle who filed for Bank 7 in the spring. He has recently completed the required online course and I imagine the bankruptcy will be complete sometime soon. Not sure how long the process takes?

    He has a home that is paid off and also has a home equity line with a balance of about $10k. His house is probably worth about $55k.

    He wants to sell his home and move into a senior center. When is he able to sell his home legally after the bankruptcy is complete?
  • 09-04-2014, 07:37 AM
    flyingron
    Re: Selling a Home After Chapter 7 Bankruptcy
    Most likely yes. He has equity of $45K and he can exclude $37,775 of that interest in Michigan, or if he 65 or over, he can exclude all of it. He should discuss this with the bankruptcy attorney.
  • 09-04-2014, 07:39 AM
    Mr. Knowitall
    Re: Selling a Home After Chapter 7 Bankruptcy
    While he should discuss his exemptions with his bankruptcy lawyer, once he has his Chapter 7 discharge order exemptions and exclusions become irrelevant and a final decree is entered -- the bankruptcy will be over.
  • 09-04-2014, 07:40 AM
    KachinaBean
    Re: Selling a Home After Chapter 7 Bankruptcy
    Thanks for the replies.

    So, once he has discharge order, he's free and clear to sell the house?

    Also, does the home equity line get paid off during the BK, or just credit cards?
  • 09-04-2014, 07:55 AM
    Mr. Knowitall
    Re: Selling a Home After Chapter 7 Bankruptcy
    Nothing gets "paid off". The credit cards, as unsecured debt, would be discharged. It's possible that the HELOC lender could foreclose if your uncle does not reaffirm, but often a HELOC lender will simply instead retain its lien and get paid off when the home is sold. Your uncle should talk to his lawyer about whether the HELOC lender will settle that debt and release its lien for less than he owes.
  • 09-04-2014, 08:05 AM
    KachinaBean
    Re: Selling a Home After Chapter 7 Bankruptcy
    Yes, discharged (not paid off) - got it.

    Okay - thanks - will have him talk to BK lawyer about HELOC. Thanks for your help.
  • 09-04-2014, 08:43 PM
    despritfreya
    Re: Selling a Home After Chapter 7 Bankruptcy
    Quote:

    Quoting KachinaBean
    View Post
    So, once he has discharge order, he's free and clear to sell the house?

    ABSOLUTELY NOT!!!!!!!!!!!

    Regardless of any exemption that he may (or may not) be entitled to he IS NOT allowed to sell property until the property is NO LONGER property of the bk estate. His discharge has nothing to do with it.

    Property is no longer property of the bk estate upon the earlier of 1) a specific Order abandoning it or 2) the closing of the case which acts as an abandonment.

    Your dad needs to speak to a bk attny before he even considers listing the property for sale.

    Des.
  • 09-04-2014, 09:01 PM
    flyingron
    Re: Selling a Home After Chapter 7 Bankruptcy
    You don't pick and choose what debts go into the bankruptcy. He's required to list all his outstanding debts The interest in the house should be protected but YES as indicated he can't sell it until after the banktrupcy is over (or specifically authorized by the trustee).
  • 09-05-2014, 05:43 PM
    tex11
    Re: Selling a Home After Chapter 7 Bankruptcy
    Quote:

    Quoting despritfreya
    View Post
    ABSOLUTELY NOT!!!!!!!!!!!
    Regardless of any exemption that he may (or may not) be entitled to he IS NOT allowed to sell property until the property is NO LONGER property of the bk estate...

    despritfreya, this is incorrect.

    Exempt property as defined by Michigan statutes IS NOT property of the bankruptcy estate, and the exempt homestead may be sold, of which up to $45,000 remains exempt. If the property is sold, the home equity loan which is not exempt will be paid to the lien holder at closing, and after other closing costs are paid, your elderly uncle should receive the balance.

    Your uncle needs to ensure that the proceeds are not comingled with non-exempt funds, and should be in its own account.

    Just beware of a caveat that the exempt cash proceeds only remain exempt for one year, unless rolled into another exempt asset such as another homestead. Otherwise if it takes longer than a year for bankruptcy to close, that would put the funds at risk.

    But once Chapter 7 is discharged, any money he has remains his property to do as he wishes.

    Though he may use his exempt home sale proceeds pending bankruptcy to pay costs of his retirement home. But while bankruptcy is pending he should avoid dipping into that fund if he has non-exempt income to pay for that. This to maintain his non-exempt assets as low as possible until bankruptcy is discharged.


    Quote:

    Michigan Bankruptcy Statute
    MCL 600.5451 Bankruptcy; exemptions from property of estate; exception; exempt property sold....

    (1) A debtor in bankruptcy under the bankruptcy code, 11 USC 101 to 1532, may exempt from property of the estate property that is exempt under federal law or, under 11 USC 522(b)(2), the following property:
    (m) The interest of the debtor, the codebtor, if any, and the debtor's dependents, not to exceed $30,000.00 in value or, if the debtor or a dependent of the debtor at the time of the filing of the bankruptcy petition is 65 years of age or older or disabled, not to exceed $45,000.00 in value, in a homestead.

    (2) An exemption under this section does not apply to a mortgage, lien, or security interest in the exempt property...

    (3) If property that is exempt under this section is sold..., the right to receive proceeds or, if the owner receives proceeds and holds them in a manner that makes them identifiable as proceeds, the proceeds received are exempt from the property of a federal bankruptcy estate in the same manner and amount as the exempt property. An exemption under this subsection may be claimed up to 1 year after the receipt of the proceeds by the owner.
    History: Add. 2004, Act 575, Imd. Eff. Jan. 3, 2005 ;-- Am. 2012, Act 451, Eff. Dec. 31, 2012

    http://www.legislature.mi.gov/(S(xfh...e=mcl-600-5451
  • 09-05-2014, 08:57 PM
    despritfreya
    Re: Selling a Home After Chapter 7 Bankruptcy
    Tex,

    I am not sure what you are getting at. The exemption statute does not trump what is defined as property of the bk estate under 541. In fact, all property is property of the estate. True, that once an exemption is “allowed” that property may (and I stress the word “may”) no longer be property of the estate. However, even that concept is not definitive. See:

    In re Cormier, 382 B.R. 377, 401 (Bankr. W.D. Mich., 2008);
    In re Erickson, 406 B.R. 522, 528 (Bankr. W.D. Mich., 2009); and
    In re Lewandowski, 386 B.R. 643, 647 (E.D. Mich., 2008)

    There are many other cases.

    Dad needs to discuss with an attny before he does anything. Can tell you in my district, the allowance of an exemption does not remove the property from the estate and if a debtor thinks the property value will go up to a point that exceeds the exemption, he better get the abandonment sooner rather than later.

    Lastly, in all likelihood, a title company will not issue a title policy if the property is not officially abandoned.

    Des.
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