One of the American dreams is to be a homeowner. When you are in the middle of a financial struggle, Chapter 13 can be the answer to getting a fresh start, but many are hesitant because of their dream of buying their own home. To buy or incur new debt to purchase a home in the Middle District of Alabama, a motion must be filed with the court seeking permission to do so.
Factors for Purchasing a Home
Factors the court will consider are as follows:
- How long have you been in Chapter 13? If you have been in the Chapter 13 for a short amount to time, you may need to wait a little longer to prove that you can handle the required Chapter 13 payment.
- Do you have a good pay record to the Chapter 13 trustee? If you have shown that are responsible and pay timely, that helps show the court that you can handle the expense of a mortgage.
- How much are you currently paying in rent versus what the house payment will be? If you are paying more in rent than what the house payment will be, that improves the chances of the court approving the motion to incur as it reduces the outgoing expenses each month.
- What are the terms of the purchase of the home? The court will need to know how much the home will cost with the amount of closing costs, interest and monthly payments to make an informed decision on whether you can afford the new expense.
- How much are you paying to unsecured creditors? If your plan is not paying your unsecured creditors in full and you have been in less than three years, the court will look at whether the new expense of a house is unfair. Hence, if you can afford a house payment that increases expenses but not paying that “extra” amount to your unsecured creditors.
- Can you afford the extra expenses that go along with owning versus renting? This can be the insurance, taxes and maintenance expenses. Owning a house is not just a payment. The extra expenses that come with it need to be considered to make sure you can afford it without jeopardizing your ability to make the required Chapter 13 payment.
Before any motion can be filed asking for permission, you will have to find a lender willing to do the financing for you and finding the house you want to purchase. It’s important to keep in mind that while you may be approved for a certain amount, you may want to keep the budget less than the full amount, so you will have some wiggle room for those unexpected expenses.
It is possible to purchase a home while in Chapter 13 bankruptcy, but like all things related to bankruptcy, it requires more paperwork and a little work on your part to show that you can handle the additional expense.