Declaring bankruptcy often leads to an overwhelming process of evaluating your assets and managing your financial situation. There can be a lot of challenges associated with bankruptcy, but most of these can be overcome with the right approach. If you are a homeowner faced with bankruptcy, you may be wondering if you need to sell this property to make payments towards your debt. In some situations, selling your house can be a beneficial step towards taking control of your finances. However, selling a house while going through bankruptcy can come with many stipulations.
How Does Chapter 7 and Chapter 13 Bankruptcy Differ?
The two most common types of bankruptcy for individuals include Chapter 7 and Chapter 13. There are many differences between these programs. Chapter 7 bankruptcy, or liquidation bankruptcy, is designed so that a person’s assets are sold in order to pay off their debt. This form of bankruptcy is often filed by those with a lower income. Chapter 13 bankruptcy, or reorganization bankruptcy, installs a repayment plan to recover debt.
Can I Keep My Home After Filing Bankruptcy?
In theory, someone experiencing bankruptcy should sell all unnecessary property in order to pay off outstanding debt. However, the purpose of bankruptcy is to help you start again financially without knocking you completely to your feet. A large factor in the likelihood that will keep your home during bankruptcy is the type of bankruptcy for which you file and the amount of equity on your home.
The exemptions for selling property with Chapter 7 are capped at a smaller amount with less flexibility than with Chapter 13 exemptions. If you file for a Chapter 13, it is much more plausible you will have the opportunity to keep your home. However, there are instances where you can maintain your house with a Chapter 7 bankruptcy as well. Federal law exemptions can differ from state law. It is important to look into the exemptions offered by your state of residence.
Can I Sell My House if I am Going Through Bankruptcy?
Sometimes it can be possible to sell your house when faced with bankruptcy. The process will largely depend on when you decide to sell the home and the kind of bankruptcy for which you file. Here are three general bankruptcy situations and the stipulations for selling a home in each:
1. Selling a House Before Chapter 7 or Chapter 13 Bankruptcy
If you choose to sell your house prior to filing for bankruptcy, you must be careful that this action does not come across as fraudulent. If the property qualifies as an exemption, it can be sold without consequences. However, if you choose to sell your house pre-bankruptcy, you must do so carefully. You could be punished for selling the property as an attempt to avoid paying back debt. The only exception for selling nonexempted property right before filing for bankruptcy is to generate money for necessities.
2. Selling a House After Filing Chapter 7 Bankruptcy
As soon as you file for a Chapter 7 bankruptcy, a trustee is appointed as the legal owner of all of your assets. You are not legally allowed to do anything with your property without consent from the trustee or bankruptcy court. Even if the trustee deems your house as an exemption, this person retains the right to your property until the case is finalized. In order to sell your house while in a Chapter 7 bankruptcy, you must first obtain approval from the court. This can be done by filing a Motion to Sell Real Property. The formal motion will need to include pertinent information such as the selling price, the mortgage lender, and a detailed description of what you plan to do with the proceeds of the sale. In order to keep the proceeds from the sale, you will most likely need to turn around and immediately invest it into another residential property.
3. Selling a House After Filing Chapter 13 Bankruptcy
With this kind of bankruptcy, you still retain possession of your assets. You have the ability to sell your home while going through a Chapter 13 bankruptcy, but the process will include a significant amount of paperwork and must receive final approval from your bankruptcy trustee. If you are planning to sell your house during a Chapter 13 bankruptcy, notify your attorney as early as possible in order to file a motion to sell.
If you are faced with bankruptcy and are looking to sell your home, it is important that the process is quick and straightforward so you can take that next step towards minimizing your debt. 365 Property Buyers is a property solutions company that is dedicated to helping homeowners in any situation. We can provide fast closings on a date that works best for you. To receive a free, no-obligation cash offer, call us at (501) 369-0365 today!