February 16, 2023

Can You Sell Your House After Filing Chapter 7 Bankruptcy?

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Can You Sell Your House After Filing Chapter 7 Bankruptcy?

Can You Sell Your House After Filing Chapter 7 Bankruptcy?

Filing for Chapter 7 bankruptcy is a good way to get debt relief when one cannot afford a reorganization or a new payment plan as in Chapter 13. Note, however, that filing for Chapter 7 bankruptcy can affect a home sale. 

While you can sell a house after filing for Chapter 7 bankruptcy if the court approves, you won't be able to keep the proceeds of the sale unless your state has an exemption law for certain assets or you buy another house and it is considered a homestead exemption claim.

Selling a house after filing Chapter 7 can be a bit complicated. But in this blog, we'll try to make everything super clear and easy! Read on if you want to learn more.

What Is Chapter 7 Bankruptcy?

What Is Chapter 7 Bankruptcy?

According to the United States Courts, Chapter 7 bankruptcy or total bankruptcy is a legal proceeding wherein the assets of the debtor that exceeds certain limits are gathered and entrusted to a trustee.

These assets are then used to pay what the debtor owes to the creditors in accordance with the bankruptcy code.

It is crucial to know that filing Chapter 7 can ultimately lead to property loss unless the bankruptcy code allows some "exemption" to the assets being collected.

But in most cases, all assets are liquidated by the trustee to pay the outstanding debt, pay the trustee's commission, and give the debtor a fresh start so they can have a brighter financial future.

The bankruptcy would be discharged when the debtor took credit counseling and other debt management lessons.

Note: Chapter 7 cannot help you avoid foreclosure nor will it wipe out child support debts.

Documents Needed When Filing Chapter 7 in the Bankruptcy Court

Documents Needed When Filing Chapter 7 in the Bankruptcy Court

If you are in a sticky financial situation and have no choice but to file for Chapter 7, here are the documents you'll need:

  • Paycheck stubs from the last 6 months
  • Bank statements from the previous 6 months
  • Tax returns slip from the past two years
  • Current investment and retirement documents
  • Billing statements, credit card, and collections
  • Mortgage payments and car loan statements for the past two months
  • Car and home evaluation printouts
  • Driver's license and social security card
  • Updated credit history
  • Repair statements for properties that are damaged

Can You Sell Your House After Filing Chapter 7 Bankruptcy?

Can You Sell Your House After Filing Chapter 7 Bankruptcy?

Yes. You can legally sell a house after filing for chapter 7 bankruptcy; however, you should obtain court approval before making any actions.

Remember that your assets (nonexempt property), including your home, are held by a trustee. You can't make decisions regarding your assets without the consent of the court and the trustee.

Even if your house is deemed an exemption, the court-appointed trustee still has the right to your residential property until the bankruptcy case is finalized.

As such, you have to file a Motion to Sell Real Property. In this, you have to include your selling price, details of the lender or mortgage company (if you are selling traditionally), and what you plan to do with the sale's profit. 

After you receive the green light, that's the only time you can start selling.

What Is Homestead Exemption?

What Is Homestead Exemption?

When you file for Chapter 7 bankruptcy, not all your assets can be collected by the bankruptcy trustee.

Most states have homestead exemptions where the court decides which of your properties are exempt from being liquidated.

You can identify what are these exemptions by checking out the exemption statutes of your state.

If you plan to sell your home before or after filing bankruptcy, you must ensure that the federal government exemption protects your home's equity.

Almost every state has a homestead exemption and other exemptions but it is capped at a certain amount. For instance, in some states, you can protect $10,000 or less from your equity, while in others, you can protect $500,000 above.

Homestead exemptions also safeguard your profits from a home sale.

This protection is only limited to a certain period so you should reinvest all the profits by buying another property, otherwise, the bankruptcy trustee will collect all the proceeds from you.

If, for instance, you live in a state where a case law exists (the bankruptcy trustee cannot collect the proceeds even if the exemption period expires), you must still ensure that your interpretation of the law is correct, especially if your house has a significant amount of equity.

In this case, you have to consult a bankruptcy lawyer since they are also well-versed with real estate purchases and sales of assets related to Chapter 7.

How to Sell a House After Filing Chapter 7 Bankruptcy?

How to Sell a House After Filing Chapter 7 Bankruptcy?

If your home is deemed an exemption from the Chapter 7 bankruptcy according to state laws, you can proceed with a home sale.

You can either sell to a cash buyer or employ a real estate agent to list your home. You can also sell FSBO but the former two are the most common options.

Sell Your House to a Cash Buyer

Getting a cash offer from a cash buyer is the fastest way to sell your house after filing Chapter 7.

This is possible because there are no mortgage applications involved which can delay the sale.

Selling to a cash buyer is super easy. You just have to ask them for an offer via call or through filling out a form on their website.

After this, they'll visit your bankruptcy estate to check its condition— an appraisal and inspection of sorts. Through this home walkthrough, they'll formulate a fair cash offer.

Once you have agreed on a cash offer, they'll electronically send a contract that will make the sale official. They'll ask you to review the terms and then sign so the sale can proceed to close.

During closing, you'll have to sign some more paperwork to get your cash. This is also when you transfer the deed to the cash buyer making them the legal owner of your property.

Cash sales can close in as fast as seven days. You won't also be required to make repairs to the bankruptcy state— a great advantage given that you have already filed for bankruptcy.

Another great thing about getting a cash offer is that the sale is less risky. You don't have to worry that it will fall through because there's no mortgage lender dictating the release of funds.

You also don't have to pay for any processing fees or closing costs because the cash buyer would pay them for you. During closing, you can walk away with enough cash to buy a new property and pay your outstanding debts.

Sell With a Real Estate Agent

Selling a property with an agent after filing Chapter 7 is also possible. However, this comes with many challenges. 

For instance, there's really no assurance when a buyer would take interest in the property. Potential buyers can also negotiate for home repairs which are impossible to do given that you're in a state of bankruptcy.

Nevertheless, if you really want to sell with an agent because you hold equity, you are free to do so.

But take note that the process would be similar to a traditional sale, which means it can take a while.

You have to price the property, get an appraisal report, do some pre-inspection, stage the property to attract potential buyers, take professional photos, list, market, negotiate, and more.

Frequently Asked Questions

Can Filing Chapter 7 Bankruptcy Stop Foreclosure Proceedings?

A Chapter 7 bankruptcy can only defer or pause the foreclosure of your home but not stop it entirely.

When you file bankruptcy petition, an automatic stay will be ordered by the bankruptcy court putting the foreclosure process on hold and it can only proceed once the case is no longer pending.

Note that in some cases, the lender may ask the court to allow the foreclosure so you would still not be in a better financial position. 

If you want to stop or avoid facing foreclosure, filing for Chapter 13 bankruptcy is a better option. This case will allow new payment plans so you can settle what you owe in the mortgage.

Whichever path you take, however, you would still get debt relief.

How Does Chapter 7 Bankruptcy Affect My Existing Mortgage?

Yes. Chapter 7 bankruptcy can affect your remaining mortgage balance. It can wipe your mortgage entirely (no need for a new repayment plan) but you can also lose the property. 

To be specific, filing for Chapter 7 means you are no longer legally obligated to pay your mortgage loan.

However, the lien is still in place so if the lender enforces it, they'll own the property legally.

Can You Get a Mortgage While in Bankruptcy?

No. You cannot get a mortgage while in the bankruptcy process whether it is Chapter 7 or 13.

Mortgage lenders and investors only give out a mortgage after bankruptcy discharge or the bankruptcy closes. Some even wait seven years after the bankruptcy discharge before they approve a mortgage.

Their stand is that if you cannot avoid your living expenses or your bills are still creating a monthly burn, then you aren't ready for the monthly expense of a mortgage.

This is also the case for other loan types. There is a waiting period before you can apply so even if the bankruptcy trustee has filed a distribution report and the case is discharged, there's no guarantee that you can get a loan immediately.

Should You Consult a Bankruptcy Attorney When Filing Chapter 7?

Yes. Consulting with an experienced bankruptcy attorney when filing for chapter 7 is suggested.

In recent years, records have shown that debtors represented by an attorney have better odds of succeeding in their bankruptcy cases. In fact, according to Forbes, debtors who consulted with lawyers are 10 times more likely to succeed.

Final Thoughts: Can You Sell Your House After Filing Chapter 7 Bankruptcy?

Selling a house after filing Chapter 7 bankruptcy is very complicated. The court can either approve or junk your request. There's also no assurance that you can keep the proceeds of the sale.

If your property is part of the exemption, then go ahead and sell it! Of course, prioritize cash buyers for a fast and easy sale.

Once you are ready to sell your house after filing for Chapter 7, get a cash offer from us at Home Buyer Network.

We'll make sure our cash offer is fair and we'll also cover the closing costs so you can get your money in full.

Call us at (855) 835-2544 or fill out our form below to start selling your house after filing for Chapter 7 bankruptcy.

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catherine mack
Author: Catherine Mack

Catherine Mack is a seasoned real estate investor and enjoys sharing her expertise through writing on relevant real estate topics. Catherine aims to educate home sellers, so they can make the best decision for their real estate problems.

She’s been featured on a plethora of publications including Better Homes & Gardens, Acorns, Realtor.com, Apartment Therapy, MSN, Yahoo Finance, HomeLight, and Business.com.

House Buyer Network™ since 2004. We buy houses nationwide. As house buyers, we offer cash for houses to homeowners looking to sell their house fast. Our cash offers are free and come with no obligations. See what we can offer and get cash for your house!

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