The short answer is yes! Selling your house after filing for chapter 7 bankruptcy in today's market is not impossible (especially at the right selling price).
Can You Sell Your House After Filing Chapter 7 Bankruptcy?
If you're considering filing bankruptcy to get out of debt, you have to know one thing: you are not alone.
It is a tough choice to make, but doing this would provide you much needed debt relief to help you regain your financial footing.
There are three types of bankruptcy filings, all under the Bankruptcy code: chapter 7, which deals in liquidation of assets to discharge unsecured debt; chapter 11, which deals with troubled businesses; and chapter 13, which deals in arranging a repayment plan to recover from debt.
In this guide, we'll walk you through your options when filing chapter 7 bankruptcy and how to get through it unscathed as much as possible.
What is Chapter 7 Bankruptcy?
Chapter 7, also known as liquidation or straight bankruptcy, is a legal proceeding to discharge your outstanding debt. The term "discharge" means you are no longer obliged to pay most of your debts. There are exceptions to this however: child support, student loans, federal government tax liens, income taxes, and criminal fines.
When you file for bankruptcy, all your assets become part of the bankruptcy estate unless you can secure an exemption. These assets will then be liquidated, or sold, and the proceeds distributed to your creditors.
While this may sound scary, you will not be left penniless. The goal of a bankruptcy case is to give you a fresh start, and that means you get to keep an inexpensive car, your clothing, some furniture, and if you're lucky, even your home.
The Chapter 7 Bankruptcy Process
Before you file chapter 7 bankruptcy, you must carefully explore all your options and take the necessary steps to ensure you keep ownership of your property.
It would be worthwhile to meet with a bankruptcy lawyer to help you analyze your debt, evaluate your assets, and help you decide the best course of action.
Bankruptcy and Homestead Exemption
You must familiarize yourself with the details of exempt and nonexempt property. Although the homestead exemption amount varies depending on state laws, there is a federal homestead exemption in the amount of $27,900.
There are states that allow the debtor to choose between the federal and state rate. So, for example, if you hold equity worth $85,000, you can check if the state exemption is more generous.
In New York, for instance, the exemption claim ranges from $75,000-$150,000. Married couples can claim double the amount, so up to $300,000 can be shielded from being liquidated.
Whatever the case, you must make sure that an exemption protects your home equity.
Should You Get A Bankruptcy Attorney?
This is where hiring an experienced bankruptcy attorney would be beneficial. If you have a significant amount of equity to protect, the consultation fee is very small relative to what you might get out of it.
The bankruptcy attorney familiar with the court in your area can guide you in helping you keep possession of your house. Building this attorney client relationship is worthwhile when filing for bankruptcy.
The Role of the Bankruptcy Trustee
Once you file bankruptcy, an automatic stay is ordered on your assets. When a stay is in effect, your creditors cannot demand collections from you.
The court then appoints a bankruptcy trustee to represent your creditors. The trustee is an administrator who takes control of all of the debtor's estate which have not been declared exempt.
Nonexempt property includes, but is not limited to:
- Vacation home
- Second car
- Collections - watches, paintings, wine, to name a few
- Inherited valuable items such as jewelry
- Cash, bank accounts, stocks, bonds, and other investments
However, if the value of your property doesn't exceed your exemption, mortgage, sale cost, and the trustee's commission combined, the trustee will not sell your property. This means the equity is not enough to cover your debts and you'll be able to keep it.
What Happens After the Bankruptcy Case is Closed?
If you're lucky to live in a state where you can exempt your entire homestead, you can then sell it to purchase a new home without needing financing.
In most cases, however, the exemption is just enough for a down payment... with your credit score destroyed, you may have a hard time securing a mortgage.
The Effect of Bankruptcy on Your Credit Score
Yes, declaring bankruptcy will hurt your credit score. It will be in your credit history for up to 10 years, so it would take time and effort for you to recover.
It can also prevent you from qualifying for a conventional mortgage loan for about the same time. It is possible though, for you to qualify for a Federal Housing Administration (FHA) mortgage, but you still need to have re established good credit standing for two years since you filed for bankruptcy.
Although things might look bleak, all hope is not lost, as you will see below.
How Soon After Chapter 7 Can I Sell My House?
Once the trustee releases a "No distribution report" and the bankruptcy court closes your case, you can immediately sell your house. In doing so, the bankruptcy trustee would have no claim over the proceeds of the sale, and you can do with it as you wish.
Reminders in Selling Before or During Filing Chapter 7 Bankruptcy
If you sell before the bankruptcy closes, you will be required to reinvest the proceeds from the home sale into the purchase of a new home or the trustee could claim it and distribute them to creditors.
Additionally, if you sell your house before you file bankruptcy, it can be misconstrued as fraudulent. If the property is exempted, there would be no consequences. The only exception is when you need the money for necessities.
How to Sell Your House After Bankruptcy Discharge
Once the bankruptcy is complete and you are able to retain ownership of your residential property after the proceedings, you are still obliged to pay all expenses.
These include your mortgage payments that are due after you filed bankruptcy. Otherwise, the mortgage lender might initiate foreclosure proceedings. However, doing so would come at great expense to the lender so you will have an opportunity to sell the property yourself.
There are two ways you could go about this:
Option #1: Short Sale
If you don't have money to keep up with the mortgage payments, then you can consider a short sale.
A short sale is when you sell your property for less than what is owed, and the mortgage lender forgives the remaining balance instead of foreclosing. Doing so means you walk away with no money from the sale, but you escape future financial distress that could come from a foreclosure.
However, if this option isn't palatable to you, and you're hoping for possible real estate solutions in order to make some profit (because who doesn't want that?), then you can...
Option #2: Find a Buyer Who Will Cover the Remaining Mortgage Balance
Simply put, the process is just a traditional sale. You can either work with a real estate agent and list it on the market, sell the property yourself via For Sale by Owner (FSBO), or sell to a real state investor for cash.
You would need to sell your house fast since you will be required to make the mortgage payments for the months that your property is sitting on the market. The fastest way to sell is by finding a cash buyer.
There are cash buyers who specialize in helping homeowners get out of their dire financial situation. They would pay the mortgage balance and other associated selling costs, and in dealing with them, you wouldn't need to pay realtor's fees.
This would allow you to walk away from financial distress with cash in hand to start anew elsewhere.
Closing thoughts: Selling Your House After Filing Chapter 7 Bankruptcy
Selling your house after filing for chapter 7 bankruptcy in today's market is not impossible (especially at the right selling price).
While there are certain roadblocks, familiarizing yourself with pertinent laws can help you find your way around them. Meeting with a bankruptcy attorney and a mortgage specialist to discuss your case after filing can help shed some light to your predicament.
After bankruptcy, many homeowners sell burdensome houses fast to return to normal. If you want this to be you, too, then you have come to the right place. Here at Sell My House Fast, we can immediately get you a fair all cash offer at no obligation whatsoever for your property.
We buy houses in any condition, even financially distressed properties, giving you the much-needed relief from the headaches and stress of dealing with the bankruptcy process.
Get started using the form below, and if you have any questions regarding how we can help sell your property, just call (844) 207-0788. We're glad to be of service!