The Short Answer
Yes, you can purchase a house while in a Chapter 13 bankruptcy, but you must get court approval first. Before taking on any new mortgage, your attorney needs to file a Motion to Incur Debt with the bankruptcy court, and the trustee must sign off on it. Whether a lender will approve you depends largely on how long you've been in your plan and how consistently you've made your monthly payments. Most of our clients find they can secure decent mortgage rates about a year and a half to two years into their plan.
While in a Chapter 13 bankruptcy, you must get permission from the bankruptcy Trustee to incur any new debt. This includes a mortgage if you want to purchase a new house. When you are serious about buying a new home within a Chapter 13 bankruptcy, you should let your bankruptcy lawyer know. They will get in contact with the Trustee for you and let him or her know that you would like permission to incur debt. They will file a motion with the court for this. Once the trustee makes a decision, the attorney will let you know.
Obtaining a new mortgage while in the middle of a Chapter 13 bankruptcy may be difficult, depending upon your situation. The longer that you are in a Chapter 13 bankruptcy and making your monthly payments on time, the more likely a lender will be willing to give you a better interest rate in a mortgage. Be prepared to shop around a bit. There may be some lenders who will not give a new loan to someone who has recently filed a Chapter 13 bankruptcy. Be patient, we find a lot of our clients will get pretty decent mortgage rates about a year and a half to two years after filing bankruptcy.
Also beware that many people have to have a decent amount of money up front for the purchase of a house. That may be for a down payment on the home or for closing costs. The bankruptcy courts are going to want to know where you came up with that money. If you have been able to save that amount over time then they may feel the need to increase your monthly Chapter 13 payments. Most of our clients get the money from the support of family.
If you are interested in getting a new house while in a Chapter 13 bankruptcy you need to contact your bankruptcy lawyer. They will help guide you through the process and will be able to let you know whether they think the bankruptcy judge will approve your Motion to Incur Debt so you can get the financing necessary to purchase the home.
Key Takeaways
- You cannot take on a new mortgage in Chapter 13 without filing a Motion to Incur Debt and receiving approval from the bankruptcy trustee and court.
- The longer you've been in your Chapter 13 plan and making on-time payments, the better your chances of finding a lender willing to offer a reasonable interest rate.
- Some lenders will decline to issue a mortgage to someone currently in Chapter 13, so shopping around is essential — patience is part of the process.
- The bankruptcy court will scrutinize where your down payment and closing costs came from, and unexplained savings could trigger a request to increase your monthly plan payments.
- Most clients who successfully purchase a home during Chapter 13 receive down payment funds as gifts from family, which the court generally views more favorably than accumulated savings.
- Always contact your bankruptcy attorney before beginning the homebuying process — they coordinate directly with the trustee and can assess whether approval is realistic in your specific situation.
Attorney Insight
The mistake I see most often is clients who go house-hunting — sometimes getting pre-qualified — before telling us they want to buy. Any lender inquiry or formal pre-approval can complicate the court approval process if it looks like you've already committed to taking on debt before getting permission. The trustees here in the Middle and Western Districts of North Carolina take a hard look at where the down payment money is coming from, and if you've been quietly stockpiling savings, expect a motion to modify your plan and increase your monthly payments. Come to us first, before you talk to a realtor or a lender — the sequence matters enormously.
