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The attorney is generally correct. The bankruptcy court seizes all of the debtors possessions (usually only assets, things that have a title) when bankruptcy is filed and holds them in trust for the creditors. The creditors then have to petition the bankruptcy court to release them.
You didn't say if there was a mortgage on the property, but I'm assuming not. If not, then your client can petition to the court to allow the house to be sold and pay off all debt. The bankruptcy court will want to make sure it is sold at fair market value. I don't know the court will care if the house is sold as less than fair market but all other debts are paid off. They should be happy with that, but I don't know.
I just worked with a clients bankruptcy and the sale of her house. I'm not sure if she was chapter 13 or 7, but she was paying to the court. We sent the offer to the attorney. the attorney submitted the offer with a net sheet to the judge assigned to the case. It can take up to 2 months (we did it in 3 weeks though) and got the judge to agree to the purchase. All the debts had to be paid from the proceeds of the sale on the HUD 1.
Can't this be done? hopefully Austin-Willy will have more information....
bigtrees has been my experience as well. The court seizes all of the assets. They fill out their long forms of all creditors, yadda...yadda...then once they have all of the information, the judge typically (at least out here ) orders it to be sold. At least that seems to be how it has been since the bankruptcy laws were changed a few years ago.
In order for title insurance to be issued and title to be transferred, the court has to release the house. I just had a buyer who bought a house that was tied up in bankruptcy and the title company worked with us to get the release from the court. They were at the end of the process though.
They still technically own the house so they can enter into a contract subject to the court approval. That is usually how we enter the contingency in out here. Then the court can review the offer, decide what happens with the proceeds and then releases the house.
I'm sure it can be done as the house might have to be sold anyway. (A possible exception is the homestead exemption - I don't really know how this works.) But as of the moment the person files for bankruptcy, all of his assets are frozen until a judge says otherwise.
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