Seller in Bankruptcy

1. Insuring a Sale of property where the seller has filed bankruptcy, requires one of the following:

  • The bankruptcy case is closed, or
  • The bankruptcy case is dismissed (that's "dismissed", not "discharged"), or
  • The court file shows the property is exempt (residence only), BEWARE: In a Chapter 13 case, the residence is usually included in the debtor's "Plan", even if it is exempt.
  • The property is abandoned by the court or the trustee, or
  • A court order authorizes the sale, and the 14-day appeal period has expired. (In a Chapter 11, an Order Confirming the Plan will re-vest title in the debtor.)

A discharge of debtor does not release the property from the bankruptcy.

A motion for relief from the automatic stay only allows the foreclosing lender to proceed with foreclosure. It does not allow the bankrupt borrower to move forward with a sale of the property. 

Documents needed to analyze bankruptcy questions:

  • Bankruptcy petition
  • Schedules (usually attached to the petition)
  • Docket (i.e. a list of all documents filed in the bankruptcy case)
  • Plan (Chapter 11 and 13)

2. Eliminating a judgement lien against the seller is an entirely separate matter. 

To eliminate a judgement lien, we need to:

  • Record a certified copy of a court order avoiding the lien (usually under the Bankruptcy Code Section S22(f)).

3. Eliminating federal and state tax liens is next to impossible. 

Also, do not rely on a bankruptcy order purporting to set aside property taxes. 

Want to learn more? Give us a call at 562.726.4056.

Courtesy of Chicago Title.

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