Selling Your Home After Filing for Bankruptcy
It may be possible for homeowners to sell their homes during a bankruptcy. However, debtors should be aware of the possible complications and restrictions they may face in doing so.
Selling a Home with an Active Bankruptcy
When a bankruptcy has been filed, the Court imposes an automatic stay that stops all collection actions. This includes foreclosure. In the case of a Chapter 7 bankruptcy, it depends whether the home is exempt from the bankruptcy proceedings. Technically, the Court takes control of all the debtor’s assets. If the home is not exempt, the bankruptcy trustee may sell it to pay off the filer’s debts. The Court may order that a homeowner sell his or her home as part of the bankruptcy closes to satisfy debts included in the bankruptcy filing.
If the home is exempt, the homeowner retains possession of the home and could sell it once the bankruptcy has closed. But if the bankruptcy is in effect, it may be possible to sell the home when a homestead exemption has been granted by the Court. The debtor would request that the Court “abandons” the home as an asset. This would allow the sale of the home before the bankruptcy closes.
With a Chapter 13 bankruptcy, a debtor may list his or her home and negotiate with potential buyers during the debt repayment. However, any offers are considered conditional because the court will need to approve the sale. The debtor’s bankruptcy lawyer would file a motion with the court and work out the terms of distributing proceeds of the sale. The court could require some or all to be used to pay down debts.
Selling after the Bankruptcy is Complete
Once a bankruptcy has been discharged, the filer is usually free to sell his or her home. But this depends if the court has made specific stipulations that could delay immediately selling it. Any liens or judgments secured against the home may need to be cleared. Another issue that could complicate the sale is if the lender initiates new or continues with foreclosure proceedings that were stalled by the bankruptcy filing.
Homeowners who complete a bankruptcy should consider whether selling a home is in their best interest. A bankruptcy prevents qualifying for a conventional mortgage for seven years. If the debtor has re-established his good credit, it is possible to qualify for an FHA mortgage in two years.