You are filing for bankruptcy and may be wondering—can I sell my house?
Selling your house after filing for Chapter 7 bankruptcy can provide the fresh start you need if you’re experiencing financial hardship. The goal is to help erase or reduce your debts as much as possible.
Once the bankruptcy process is complete, it’s legally acceptable for you to sell any assets in your possession – including a home! However, selling this property while still going through with bankruptcy may require authorization from the court beforehand, depending on the local bankruptcy code.
Upon filing for Chapter 7 bankruptcy, your possessions are subject to bankruptcy court. Before you can sell your home, the court must give permission. The court is in control of your property, and it is known as a bankruptcy estate controlled by a trustee.
The best advice is to consult a law firm that can advise you on your specific situation. A bankruptcy lawyer will be well-versed in your state’s bankruptcy law and can give you professional legal advice.
Keep reading to learn more about selling your house while filing for bankruptcy and what the process might look like for you.
Selling a House After Filing for Chapter 7 Bankruptcy
If you sell your home before or after filing for bankruptcy, you can only keep the money if it is allowed by the law in your state. You may also be able to save money if you use it to buy a new home with special protection from the law. You may have to wait until after your bankruptcy ends before you try to sell the house.
If you have a Chapter 7 bankruptcy filing, you might have to give up some of your things. This money will be used to pay people you owe and provide you debt relief.
Even when times are hard, you can keep important things like a car and furniture. Depending on where you live, you can save home equity. This means that even if you file for bankruptcy, you will have something. Most people can control all their things. But if you have a lot of money tied up in your home, keeping it all can be challenging.
Your state decides which of your property is protected and its value. This property is called “exempt,” The rules are in the state’s exemption statutes. Any property that does not have these rules is called “non-exempt property” and is subject to liquidation. When this happens, a bankruptcy trustee will sell the nonexempt items and give the money to creditors.
What is Chapter 7 Bankruptcy
People with low income or little property can do Chapter 7 bankruptcy. People with more money and lots of possessions usually do Chapter 13 bankruptcy.
To qualify for Chapter 7 bankruptcy, you need to pass two steps. First, your family’s income must be low enough. If it is too high, you will subtract expenses from the payment. Then if there isn’t enough left to pay back creditors and the trustee fee, you can apply for Chapter 7 bankruptcy.
You must fill out particular forms to start your Chapter 7 bankruptcy. These forms tell the court about your money and assets.
Your state decides what property you can keep when you go bankrupt. You can save your real property, car, clothes, furniture, retirement money, and some tools for work. Check with your state to learn more about keeping things when you go bankrupt.
Chapter 7 bankruptcy can help stop people from asking for money you owe them. This differs from Chapter 13 bankruptcy which puts you on a repayment plan.
When you file, the court gives an order that stops most people from trying to get the money back. When you file for bankruptcy, creditors can’t take your wages, money in the bank, car, house, or other things. They also cannot turn off your water and electricity. Filing for Chapter 7 will stop some lawsuits too.
When you go bankrupt, it means you don’t have to pay some of your debts anymore. You cannot avoid debts like child support and student loans regardless of the type of bankruptcy you file. This is called a bankruptcy discharge. The court orders that people or businesses owed money can’t try to get the money from you anymore. This includes calling or writing you or even trying to come to talk to you in person.
Typically, a bankruptcy stays on your credit report for ten years. It will lower your credit score, but in some cases the hit to your credit is worth it.
Can You Keep a Property Exempt from Bankruptcy
When filing for Chapter 7 bankruptcy, you will usually not lose any of your property. You can only lose the property if an exemption does not protect it.
Bankruptcy exemptions are laws that protect some of your stuff from creditors. They cannot take your clothes, dishes, couch, or other items in the house if it is worth less than $700. This law works even if you file for bankruptcy.
Bankruptcy does not protect luxury items or things worth much money, such as a boat, an expensive car, or even your house. This can happen if you file for Chapter 7.
Every state has specific rules about taxes. Most states need people to follow their rules for taxes. But some states let you choose between their laws and the federal government’s tax rules.
The government and state laws let you keep a certain amount of equity in your home and things you own, like a car or retirement accounts. Most states only allow you to save a little cash. Your clothes and furniture usually stay safe unless they are worth money.
Exempting Proceeds After Selling Your Home
Where you live can give you a unique protection called the homestead exemption. This protects some of your money from creditors if you file for Chapter 7 bankruptcy.
If you owe more on your loan than the home is worth, the court usually won’t make you sell it. That’s because the house has no money for anyone to get. The bankruptcy trustee may choose to abandon the home to you.
They might choose only to take it if they get enough money selling it. This happens when the value is higher than the amount you can keep. If the trustee doesn’t take it, you get to keep it.
Then, you can ask the court to let you sell your home. The court can permit you to sell the house even if your bankruptcy has yet to finish.
If you want to sell your home before or after filing a Chapter 7 bankruptcy case, check if an exemption will protect the money you make from the sale.
Certain protections help keep the money safe when you sell your home, but you may have to clear any liens against your house before selling. Most courts say that the bankruptcy trustee cannot take your money if you sell your house after bankruptcy.
Can You Sell Your Home After Chapter 7 Bankruptcy
Once you file for Chapter 7 bankruptcy, the court takes control of your assets. The court will decide if you can keep your home or if it should be sold to make money and pay off your debts.
Figure out how much money you can keep from your home. The trustee has the power to take away anything that is not protected. If you are old or have a disability, you might get more of an exemption. Equity is the value of your house minus any money still owed on it.
Go to the first meeting with your bankruptcy trustee. This usually happens 30-45 days after you file for bankruptcy. Make sure to tell your bankruptcy trustee what exemptions you want.
If the cost of the mortgage loan, tax help, and money to pay for selling your house is more than what your home is worth, then you have no extra money, and there will be no forced sale.
Think about what the trustee will say. If he is okay with your exemption and decides that no assets can be sold, he will leave them alone.
The court will send you papers that show you are done with your bankruptcy. You now own your home again and can sell it. Remember to account for capital gains tax when selling your home!
You can hire a real estate agent to put your home up for sale. They can talk to people interested in buying it and help you get a reasonable price. Or, if you need cash fast without going through the hassle of a traditional home sale, you can find a cash buyer.
If you are considering filing for Chapter 7 bankruptcy, it is essential to understand the options available to you. You may be able to keep a property exempted from bankruptcy or sell your home after filing. However, specific rules and regulations must be followed to do so. Speak with an experienced bankruptcy attorney to discuss your situation and the best action.
If you need to get cash to pay a debt or want to sell your house to avoid foreclosure proceedings, selling to a real estate investor who can pay cash for your home might be the answer for your home.
When times are hard, choosing to sell your home to a cash buyer can be helpful. It means you can get money quickly, avoid foreclosure, and make things easier if you need to sell after a divorce, illness, or the death of a family member.
Selling a house for cash means:
- No need to clean, arrange furniture, or show the house.
- No waiting for appraisals or banks.
- No home inspections, so no repairs are needed.
- No closing costs, more money for you!
- No real estate agent fees, more money for you!