If you are like me, you love watching HGTV’s “House Hunters”. It’s fun to see different houses and walk into “the one” and feel at home. Most Americans dream of being 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 the court will consider are as follows:
How long have you been in Chapter 13?
If you have been in a Chapter 13 bankruptcy 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 payment 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, in addition to 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.
How to Ask for Permission from the Court to Buy a Home
Steps to take before any motion can be filed asking for permission to buy a home while in Chapter 13:
- Find a lender willing to finance a home for you. Ask your friends who they used to finance their home. Seek realtor’s familiar with the process and ask for referrals to financial institutions that may finance for you.
- Look at houses in your price range only. Once you are armed with financing, you will now know how much “house” you can afford. Keep in mind the maintenance costs or other upkeep that may increase the costs of the home.
- Find a realtor who can walk you through the process. Most realtors will be familiar with the financing and bankruptcy process. They will know what paperwork the bankruptcy court will require and can provide to you to get the motion with the court filed.
- Provide the paperwork to your bankruptcy attorney to file with the court. Once the motion is filed, it generally takes about a month at most. Typically, I find that if you have your financing in place, the court will approve since it is advantageous for you to own your own home versus paying rent that can be higher than a rent payment.
Contact a Knowledgeable Chapter 13 Bankruptcy Attorney
So yes! It is possible to be a House Hunter while in Chapter 13 but there are extra steps and paperwork to take if you are in Chapter 13. If you need to discuss your finances, please contact one of our Bond & Botes attorneys for a free consultation.