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Chapter 13 Bankruptcy Question: Can a Debtor Sell Assets?

by Chad Johnson on 6/26/2014

The Debtor in a Chapter 13 bankruptcy is permitted to sell assets with court approval. In the United States District Court, Eastern District of California, Local Rule 3015-1(b)(1) states

“The debtor shall not transfer, encumber, sell, or otherwise dispose of any personal or real property with a value of $1,000.00 or more other than in the ordinary course of business without prior Court authorization.”

Abide by Court Approval Process

Local Rule 3015-1(i)(4) explains the process to get court approval in this District. “The Court may approve an ex parte motion by the debtor to sell real or personal property with a value of $1,000.00 or more other than in the ordinary course of business if the trustee’s written consent is filed with or as part of the motion. The debtor’s motion and the trustee’s approval are their certification to the Court that:

  • The sale price represents a fair value for the subject property
  • All creditors with liens and security interests encumbering the subject property will be paid in full before or simultaneously with the transfer of title or possession to the buyer
  • All costs of sale, such as escrow fees, title insurance, and broker’s commissions, will be paid in full from the sale proceeds
  • The sale price is all cash
  • The debtor will not relinquish title to or possession of the subject property prior to payment in full of the purchase price
  • The sale is an arm’s length transaction

“Trading in” a vehicle as part of the purchase price for a new vehicle complies with the requirements of (E) and (F) of this Subparagraph. The Court will not approve ex parte motions to sell property pursuant to 11 U.S.C. § 363(f).” In my experience the trustee’s prefer a motion is filed, and generally will not sign off on an ex-parte request.

Allow for Proper Notice

Bankruptcy Rule 2002(a)(2) requires at least 21 days notice on a hearing for the sale of property. If filed with 28 days notice under Local Rule 9014-1(f)(1) any opposition to the motion must be in writing. It is recommended that this time frame be used to avoid further delay if a party has any opposition to the sale. If less than 28 days notice, but 21 days or more is given, then any party can oppose in person at the hearing which would require the court to issue a briefing schedule which could delay the hearing another 30-45 days. All parties and creditors in the case must be served the motion.

The Bankruptcy Code permits the Debtor to sell property of the estate after a noticed hearing. 11 U.S.C. §§ 363 and 1303. Section 363 provides that a trustee can sell property in the bankruptcy with court permission. Section 1303 extends this right to the Debtor in a Chapter 13 case.

Learn More About Chapter 13 Bankruptcy

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