Selling a House During, Before and After Bankruptcy (A-to-Z Guide)
Even though the information on this web page is provided by a qualified industry expert, it should not be considered as legal, tax, financial or investment advice. Since every individual’s situation is unique, a qualified professional should be consulted before making financial decisions.
This guide walks you through home sales when facing bankruptcy during the process and after the federal filing has been discharged.
It also outlines what happens when you sell your property during each of these periods.
Let’s start with how to sell a house during bankruptcy.
Selling a House During Bankruptcy
Let’s begin with an overview of the most common types of bankruptcy filings.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a frequent filing for people who don’t have enough assets to cover their debts.
It’s known as a “liquidation bankruptcy” because assets are sold to pay the debts.
The benefit of this type of filing is the court will handle the resolution, and many of the debts will have been discharged after the process has been completed.
The disadvantage is the massive credit ding from the filing, even if selling your house while in Chapter 7 covers some of your debt. The filer isn’t free of all debt after the final Chapter 7 decree.
Child support, alimony, most local, state, federal taxes, and student loans can’t be discharged as part of a Chapter 7 bankruptcy.
Any real property, including a residence and other nonexempt property, might be sold by the court to pay off, or reduce, the debts, but you cannot sell your house during bankruptcy when you file under Chapter 7.
This action depends on your state laws.
If the court takes charge of the home sale, and you locate a cash buyer to purchase your house after filing Chapter 7, you can present that sale to the bankruptcy judge for approval.
How Chapter 7 Works
- Chapter 7 bankruptcy filing follows the general steps outlined in federal law, including:
- You’ll file a petition through the federal bankruptcy court and pay the filing fees.
- You’ll need a list of all your non-exempt assets and debts. Those assets are anything you own that has value, including expensive furniture, jewelry, collectibles, high-end clothing, and anything that can be sold for a significant amount of cash.
Your exempt assets are basic things you need to use for your work or to live. For example, it could include any equity in your home in some cases. Your state law will determine how your house will be handled in this type of bankruptcy.
- The court will appoint a trustee to evaluate your assets and debts and to develop a plan to decide what debt should be paid and what will be liquidated to pay it.
- If you locate cash real estate buyers to quickly purchase your property, that sales contract can be submitted to the court as part of the debt resolution plan.
The court is open to these contracts when the real estate investors have cash to purchase, and the cash buyers can close the sale quickly.
The judge will order a hearing to determine if the investor can purchase your house at that price and contract sale conditions. Any mortgage holders on your property can attend and either approve or refuse the proposed sale at that time.
Chapter 13 Bankruptcy
Chapter 13 doesn’t liquidate your debt; it requires you to pay your bills, liens, and mortgage on a trustee-approved schedule that extends debt payments over a period of 3 to 5 years.
It’s also known as the wage-earner’s plan.
There are some stipulations before you can file under Chapter 13 rules. You must have regular income that can be guaranteed, and there’s a cap of approximately $3 million on the amount of debt you can have.
The advantages of a Chapter 13 filing over a Chapter 7 is you can generally retain some of your non-exempt assets, including your personal residence.
There are restrictions to filing, however. For example, you need to be able to document you have substantial regular income.
You can sell your house after filing for bankruptcy under a Chapter 13 filing, but only with the court’s approval.
How Chapter 13 Works
Federal law established the basic steps to file Chapter 13 bankruptcy. They include:
- You’ll register for a court-approved personal financial education program and receive a completion certificate once you’ve finished the assigned work.
- You’ll then file a bankruptcy petition in federal court, submit your course confirmation, pay the filing fee, and a trustee will be appointed.
- You’ll need an inventory of your debts and assets.
- The trustee will attempt to work with your debtors to reduce the amount you’ll pay and allow you to keep the assets that are important to you during the reorganization.
- The trustee, with your input, will develop a repayment plan to resolve your debt. This plan may cover years, even decades, before your debt is discharged, but it’s typically finalized in 3-5 years.
- You can invite cash buyers to submit offers on your house during this process. If you find an offer you like, you can submit that to your trustee.
- The court will hold a hearing to determine if the contract price and terms are acceptable. Typically several professional appraisals will be submitted as documentation for the investor’s offer. Any of your mortgage holders can weigh in during this hearing.
- Once the court approves, your escrow will continue like any other property sale. The only difference is your final closing document will also be submitted to the court.
- Generally, you’ll need to take financial counseling courses as part of the final bankruptcy settlement.
Federal bankruptcy laws set the regulations for a Chapter 13 process, but there are some significant state differences when it comes to selling a house.
These may include a delay period before you can close an escrow on a real property involved in this type of bankruptcy.
Chapter 12 Bankruptcy
Chapter 12 bankruptcy filing is restricted to family farmers or small commercial fishing operations.
This type of filing typically has fewer steps, fewer fees, and a smaller number of requirements compared with other bankruptcies.
You might be able to sell your house while in bankruptcy after filing Chapter 12, but the court will need to review the contract and approve the terms.
How Chapter 12 Works
The basic steps are established by federal law:
- You’ll file a bankruptcy petition with the federal court. The filing fees are lower than the other bankruptcies, and you may be able to pay it in installments.
- You’ll need a list of your personal and business assets and debts.
- The trustee appointed by the court to work with you will develop a plan for you to continue to operate your business over the next three years while repaying your debts. Occasionally this is extended to five years.
- As part of this plan, you can submit a contract to sell your personal residence or land.
- The court will hold a hearing on the proposed sale, and any mortgage lenders may also need to approve the sale during this time.
- If the court approves the sale, it progresses as a regular sale with the exception of filing the final closing documents with the bankruptcy court.
- The court will hold a confirmation hearing on the entire bankruptcy plan.
- Typically, the court will also assign debt counseling as part of the final bankruptcy agreement.
The next segment of this guide details the ways you can sell before you need to face any of these bankruptcy filings.
Chapter 11 Bankruptcy
Chapter 11 is known as the “reorganization bankruptcy.”
Chapter 11 bankruptcy filing is typically used by people who own a business, but in cases where the debt is greater than the monetary filing limits for a Chapter 13 petition, individuals may file with a Chapter 11 petition.
How Chapter 11 Works
- You’re required to take the same financial education course required for filing Chapter 13.
- You’ll then take the course completion certification and file a Chapter 11 bankruptcy petition with the federal court. You’ll need to pay filing fees, and these will be greater than the Chapter 13 filing charges.
- You need an inventory of your assets and debts, and your plan to repay your creditors. No trustee will be assigned to you under this petition for relief. Part of your petition may include selling your personal residence to an investor.
- A court hearing will be held to confirm your plan, and you may need to modify it if your creditors disagree with your proposal.
- Once your reorganization plan has been completed, and you’ve paid your debts, the court will discharge your bankruptcy.
A bankruptcy attorney can assist you in filing a Chapter 11 petition. The legal advisor can also help in formulating a reorganization plan that meets federal and state laws.
Selling a House Before Bankruptcy
Selling a property before bankruptcy is the wisest financial plan. Selling a house to avoid bankruptcy also prevents a major ding on your credit report.
A bankruptcy makes lenders steer clear of giving you credit in the future, especially for unsecured debts. It also means you’ll pay more for the credit when you do find someone who’ll extend it.
A Short Sale
Unlike after filing for bankruptcy, you have a number of options to sell your house before filing for debt relief with the federal courts.
The first is selling your house to an investor. If the cash offer doesn’t cover your current mortgage or a collection of mortgage liens, you can ask your lender, or multiple lenders, to take less.
This is known as a “short sale.” That term is used when the lender takes less money from the buyer to satisfy a mortgage lien.
Read about the short sale process in more detail and request free short sale processing help via our platform.
Avoiding Foreclosure
Selling to a seasoned professional investor for cash can be done quickly. This allows you to reduce the number of late fee assessments, as well as the penalty interest on those fees.
Your lender typically doesn’t want to foreclose and repossess your house. Repossessing a house is an expensive process, and they’d much prefer to have the cash you owe.
They’ll work with you when you have your house under contract with a cash investor, who has an extensive history of quick closes on cash sales, to delay foreclosing on your property.
Selling a house before foreclosure may provide one of the keys to avoid bankruptcy entirely.
If foreclosure is one of the causes of your bankruptcy, request free foreclosure help via our website.
Other Debts
When your house has some equity, a fast sale to a cash buyer can give you the funds to cover other debts and save you from the need to file for bankruptcy.
If your equity doesn’t cover all your debt, the sale may also mean you have the choice to file a Chapter 13 petition rather than a Chapter 7. An experienced bankruptcy attorney can help you make that decision.
Selling a House After Bankruptcy Discharge
You can sell your house after bankruptcy discharge by a federal court, but you may need court approval. However, there may be some other snags that will require you to take action.
Bankruptcy Discharge
How long after bankruptcy can you sell your house? A bankruptcy discharge means the federal court has accepted either the terms of a Chapter 7 filing or the agreement set in place to resolve your debts under a Chapter 13 or 12 filing.
Your court-appointed trustee may still have oversight of your house after the discharge.
Your property may have other state restrictions barring or delaying a sale, even after the federal discharge.
State Laws
Each state has different laws regulating bankruptcies.
You may have received a federal bankruptcy discharge, but the state may recognize other liens and holds on your property that aren’t covered under federal law.
These will need to be satisfied before you can sell. A bankruptcy attorney and an experienced professional investor can weigh in on your sale options.
The Easiest Way to Sell a House in a Bankruptcy Situation
The easiest and quickest way to sell your house due to bankruptcy, whether when facing it or after you’ve filed for bankruptcy, is to sell to an experienced cash house buyer who can expedite the sale.
How Does This Sale Work?
- Request a cash offer from a vetted professional investor by using our platform.
- Complete the state-mandated property disclosure, when required.
- Set up appointments and tour potential investors through your property.
- Review cash offers from our partnering experienced investors.
- Select the offer that best fits your needs and circumstances. You’ll be able to select your own offer to submit to the court-appointed trustee after you’ve filed a petition for bankruptcy, but the trustee must give final approval for a sale to occur during the bankruptcy proceedings.
If you’re only thinking about filing bankruptcy, you don’t need court approval to sell. You can jump to #8 to complete your sales process.
- The court may order several appraisals of your house. A court-regulated sale typically requires several independent property appraisals. Those will be used to determine if the proposed sale matches with local home values.
If the sales price is too low, the court may refuse to sanction the sale. If you have a mortgage on your property, the lender will be involved in the sale during this hearing.
- Once the court approves the investor’s sales contract, the cash buyer will open escrow on your property.
- A title search will be done during this time to determine if there are any outstanding debts or other liens on your house.
- If there are liens, you can work with your investor to clear those debts. The court will also need to approve those actions before you can close the sale on your home.
- Once the property is clear from all liens, and you have a clear title, escrow can close the sale. Your investor typically pays home seller closing costs!
What Are the Benefits of an Investor Sale?
When you want to sell a bankrupt home and opt for selling your house to an investor by using our online platform, you will:
- Receive all-cash offers. Cash means your investor doesn’t require vetting by a lender. The buyer wants to purchase and has the cash to complete the sale.
- Have a rapid sale so you can avoid mounting late fees and interest charges while waiting for buyers to be approved for a mortgage and escrow to close in a traditional sale.
- Save cash on closing costs because the investors we partner with cover those fees.
- Avoid any real estate commissions and other costs of selling a house with a realtor that take more cash out of your pocket.
- Sell in as-is condition. You won’t have to lay out more money to pay for home cleanout, house repairs, or property staging, even if you are selling a house in bad condition.
- Have minimum hassle with paperwork and negotiations. No haggling over offers and counteroffers, home inspections, and appraisals. You won’t have any of those requirements when selling to a cash investor.
The cash buyers we partner with also will work with you on a house cleanout when you need to move quickly to meet court deadlines to sell. You can simply take what you want and leave the rest.
A stressful financial situation is difficult, and piling on the additional strain of locating ethical cash investors takes time and energy that you may not have.
HouseCashin can help reduce that stress. We’ve vetted the investors partnering with us. They have resumes that include years of experience buying houses with cash.
They’ve bought residences from people facing bankruptcy and have the ability to work with you and your trustee to buy your house and close the escrow to meet court deadlines.
If bankruptcy is looming, but you haven’t yet filed, now is the time to contact us for cash offers — before you experience additional damage to your credit.
Our investors can assist you in quickly closing escrow and removing the ongoing late fees and penalty interest from mortgage debt.
The cash offers are free, and there’s no obligation for you to accept them.
Request cash offers on our website, and we’ll relay your request to our network of cash buyers.
