Sell Your House During Chapter 13 Bankruptcy in Texas

The Short Answer: Yes, You Can Sell

You're in a Chapter 13 bankruptcy, locked into a 3 to 5 year repayment plan, and you want to sell the house. Courts approve these sales all the time. A sale often pays creditors faster, which is the whole point of a Chapter 13 plan. See uscourts.gov for Chapter 13 basics.

The catch: the house is part of your bankruptcy estate, so you need a court order before you close. If a foreclosure deadline is also in play, the guide on selling before foreclosure in Texas covers how the two timelines interact.

Why a Cash Buyer Works in Chapter 13

Court approval adds weeks to any sale, and every one of those weeks is a chance for a deal to fall apart. Here's why Chapter 13 sellers often skip the listing and sell direct.

• No financing to fall through. A financed buyer can lose loan approval or walk away while the motion to sell is pending. A cash contract doesn't depend on a lender, so the motion your attorney files stays good.
• Faster close after the order. Once the judge signs, we close in 10 to 14 days. A financed buyer usually needs another 30 to 45 days for appraisal and underwriting.
• No commission. On a $275,000 house, a 5% commission is $13,750. Skip it and that money goes toward finishing your plan or into your next Texas homestead.
• Sold as-is. No repair requests from an appraiser or inspector, and no spending money you may need the court's permission to spend.
• We've done this before. We've closed 6+ homes from Chapter 13 sellers. We sign a contract contingent on court approval, give your attorney what the motion needs, and send the trustee the closing statement.

How Selling Works During Chapter 13

1. Day 1

   You file Chapter 13. The automatic stay takes effect, foreclosure freezes, and a trustee is assigned. From here on, selling the house needs court approval.

2. Sign a contingent contract

   Get a buyer under contract first. Most courts want the contract attached to the motion, and it should say in writing that the sale depends on bankruptcy court approval.

3. Motion to sell

   Your attorney files a motion asking the court to authorize the sale. It lists the buyer, the price, and where the money goes. In Houston's Southern District, a sale of exempt property uses the court's ex parte motion form with the sale contract attached as an exhibit.

4. Notice and objection period

   The trustee and creditors get notice and a deadline to object, often 21 days. The trustee looks at whether the price is fair, how much equity there is, and whether the sale helps the plan.

5. Court order

   No objection usually means the judge signs the order without a hearing. An objection means a hearing, which can add a few weeks.

6. Closing

   The title company pays the mortgage and closing costs first. A cash buyer can close in 10 to 14 days after the order. A financed buyer usually needs 30 to 45 days.

7. Plan modification

   After closing, the plan usually gets modified to reflect the sale. In the Southern District, you also send the trustee the final closing statement within 14 days of closing.

What Happens to the Sale Proceeds?

This is where Chapter 13 differs from Chapter 7, and where Texas sellers get tripped up. At closing, the money moves in this order:

• Mortgage payoff. Your lender and any other liens get paid first.
• Closing costs and commission. With an agent, total commissions still typically run around 5 to 6% after the 2024 NAR settlement, plus title and closing costs.
• Your homestead equity. Texas protects homestead equity with no dollar cap, but sale proceeds stay protected for only six months under Tex. Prop. Code §41.001(c). In In re Frost, 744 F.3d 384 (5th Cir. 2014), the Fifth Circuit held that a Chapter 13 debtor who sells and doesn't reinvest in a new Texas homestead within six months loses the exemption on that cash. The Western District of Texas bankruptcy court summarizes the rule.
• The trustee and your plan. Cash that isn't reinvested usually goes to the trustee for your creditors. The trustee's fee comes out of money paid through the plan. Federal law caps it at 10% (28 U.S.C. §586(e)), and Houston's Chapter 13 trustees currently post 10%.

To see what a cash sale looks like for a Chapter 13 seller from offer to close, read how the Bodebuilders process works.

Texas Homestead Exemption: Unlimited Protection

You keep your homestead exemption in Chapter 13. In Texas, that's unlimited equity on your primary residence, within the acreage limits: 10 acres in a city or town, 100 acres rural for a single adult, or 200 acres for a family.

If your house is worth $500,000 with $300,000 in equity and fits those limits, the exemption covers all of it while you own it. Sell, and the six-month reinvestment clock starts.

The 40-month rule

If you acquired the home within 1,215 days (about 40 months) before filing, the interest you acquired in that window is capped at $214,000, even in Texas (11 U.S.C. §522(p), adjusted April 1, 2025). Courts disagree on whether market appreciation counts toward the cap. And if you moved to Texas less than two years before filing, you may have to use your old state's exemptions.

How Your Plan Gets Modified After You Sell

Once the trustee receives funds, the plan changes. Three outcomes are common:

Outcome 3: the payment stays the same, but the proceeds are credited against future payments. This is less common and usually comes out of a dispute over how the money gets distributed.

Either way, you don't pocket the proceeds and run. The court controls the distribution. In Texas, sale cash keeps its protection only if it goes into a new homestead within six months.

Real Scenarios: How Chapter 13 Sales Work

Scenario 1: In-plan sale with early payoff

You're 2 years into a 5-year plan paying $800 a month, and it's not sustainable. The house sells for $275,000. After the mortgage ($220,000), a 5% commission ($13,750), and closing costs ($3,000), $38,250 remains. You plan to rent, so the cash goes to the trustee. The remaining plan balance is 36 payments of $800, or $28,800. If the court approves paying off that balance, the plan finishes early and about $9,450 comes back to you. Timeline: roughly 3 to 4 months, including finding the buyer. Sell to a cash buyer instead: no $13,750 commission, so about $23,200 comes back to you, and the sale closes about 6 to 8 weeks after the motion is filed.

Scenario 2: High-equity sale and a downsize

You're 3 years into a 5-year plan at $1,200 a month and want to downsize. The house sells for $410,000. After the lender ($200,000), a 5% commission ($20,500), and closing costs ($3,000), $186,500 remains. You put $150,000 into a smaller Texas home within six months, with your attorney and the trustee in the loop, and that money keeps its exemption. The other $36,500 goes to the trustee and covers the $28,800 left on the plan (24 payments of $1,200). If approved, the plan ends early and about $7,700 comes back to you. With a cash sale: no $20,500 commission, so about $28,200 comes back to you.

Scenario 3: The 40-month rule in action

You bought the house 2 years and 2 months before filing, inside the 1,215-day window. It's worth $480,000 with a $250,000 mortgage, so you have $230,000 in equity. Because all of that interest was acquired inside the window, the exemption caps at $214,000. The other $16,000 is non-exempt and goes to creditors through the plan. The rule exists to stop people from parking cash in a Texas home right before filing.

What If Your Creditors Object?

Sometimes a creditor objects to the motion. Usually they think the price is too low, and occasionally they're fighting the plan itself. The judge sets a hearing, often within a few weeks. Your attorney shows comparable sales, the property's condition, and why the price reflects fair market value.

Most objections delay a sale rather than block it. Courts tend to favor a sale that moves the plan forward, especially when creditors would get more than they would in a Chapter 7 liquidation. Still, take every objection seriously and let your attorney respond.

Can You Sell to a Family Member During Chapter 13?

You can, but expect hard scrutiny. Sales to a relative, business partner, or anyone you're connected to are "non-arm's-length" transactions, and judges watch for prices set below market to shield equity. To get one approved, you'll need an independent appraisal, comparable sales, and ideally proof the home was exposed to the open market. A sale to an unrelated buyer, including a cash buyer, clears much faster.

What If You Have No Equity or You're Underwater?

If there's no equity, the trustee doesn't get paid from the sale, but judges still approve sales that make the plan more stable. That might mean stopping a foreclosure, cutting a housing payment you can't afford, or relocating for work. You need to show the court a reason beyond "I want to sell."

Example: You owe $235,000 on a $220,000 house and want to rent instead. Rent is $800 a month, versus $1,300 for the mortgage and taxes. Because you owe more than the house is worth, the lender has to approve a short sale. Any shortfall the lender doesn't waive is typically treated as an unsecured claim in your plan. Your attorney's motion shows the sale makes your plan payments more certain.

If back taxes or judgment liens are also stacking up, see how Bodebuilders works with Dallas sellers in complex situations where liens are paid at closing.

Timeline Checklist: Motion to Close

1. Week 0

   Sign a contract contingent on court approval, then file the motion to sell. Gather the financial documents your attorney needs.

2. Weeks 0 to 3

   Notice period. The trustee reviews the price, your equity, and whether the sale helps the plan, and may ask for an appraisal or more details on the buyer.

3. Weeks 3 to 6

   Court order. With no objections, the judge usually signs shortly after the deadline passes. With an objection, a hearing adds 2 to 4 weeks.

4. Weeks 4 to 12

   Closing. A cash buyer can close in 10 to 14 days after the order. A financed buyer needs an appraisal and underwriting, usually 30 to 45 days. The title company includes the court's order in the closing documents.

5. After closing

   Send the trustee the final closing statement (within 14 days in the Southern District). Your attorney or the trustee files a plan modification, and the new payment schedule takes effect once the court approves it.

Total: about 6 to 8 weeks from motion to close with a cash buyer, or 2.5 to 4 months with a financed buyer. If you don't have a buyer yet, add 6 to 12 weeks to find one first. See how Bodebuilders handles the process for Chapter 13 sellers from offer through close.

Can You Sell If You're Behind on Plan Payments?

Yes, and it's common. If you've missed a few payments and the trustee is pushing toward dismissal, your attorney may file a motion to sell at the same time. The proceeds catch up the arrears, and the plan is modified going forward. If the trustee has already filed a motion to dismiss, getting a sale approved is harder, so talk to your attorney fast.

What If You Want to Buy Again After Selling?

You can, with approval from the trustee or the court. In Texas, buying the next home with your sale proceeds within six months is what keeps that money exempt under In re Frost, so tell your attorney and the trustee before you buy.

The Bottom Line

• Trustee's role: An overseer, not a liquidator. The court authorizes the sale.
• Your proceeds: Protected if reinvested in a new Texas homestead within six months. Otherwise they usually go to the plan.
• Timeline: About 6 weeks to 4 months from motion to close, depending on the buyer.
• Texas advantage: Unlimited homestead protection means most Texas filers keep their equity while they own the house.
• Court's view: Usually positive when the sale helps creditors get paid.

This page is general information, not legal advice. Bankruptcy law and local court procedures vary by district and change over time. Always consult a licensed bankruptcy attorney about your situation. Bodebuilders is a real estate investment company, not a law firm.