The short and simple answer is yes. However, it is a complex process that involves the court and other stakeholders with a lien on the property. The exact procedure depends on the type of bankruptcy you have filled for.
Below is a look at how to sell a house after filing for Chapter 7 bankruptcy versus Chapter 13.
When you file for Chapter 7 bankruptcy, the court appoints a trustee who determines whether you can keep your assets or sell them to pay off your debts. When determining whether to sell your home, they assess its equity to establish if it is protected by the homestead exemption.
Different states provide different specifications for home equity exemption. In Colorado, your home is exempted if its value exceeds $75,000 and $105,000 if you, a spouse, or a dependent are disabled or above 60 years old.
Generally, if your mortgage loan, homestead exemption, sale costs, and trustee commission exceed your home equity significantly, it is exempted from liquidation. In such a scenario, the court sees selling the house as futile as it will not raise enough money to settle the debts. Therefore, it issues a “no distribution report,” and your trustee discharges your case.
It takes four to six months between the time you undertake the credit canceling course required to qualify for Chapter 7 bankruptcy and the official discharge. Any attempt to sell the house during the filing process is considered illegal, and the court may order the trustee to sell your house.
However, once the case is discharged, you are considered the official owner of the house, and you can proceed to sell it through the normal process without requiring approval from the court.
Nevertheless, it is best to wait until your bankruptcy case is completely closed before initiating a sale process for the house. Else, you will be required to reinvest the money into a new home within 6 months, or the trustee will make a claim on the proceeds to pay your creditors.
Even if you sell after the case has been closed, you still have a responsibility to pay your mortgage and other non-dischargeable debts. Therefore, once you sell the house, the proceeds will be directed towards paying the remaining mortgage. If the sale is profitable, some money may be left for you after the sale.
If the house’s equity is not enough to pay off the mortgage, it is best to initiate a short sale with the lender. Whereby all the proceeds from the sale will go towards settling your balance. While you may not make a profit, the short sale will help lift the debt burden.
Consider negotiating for a deficiency judgment when seeking approval for the short sale to free you of any liability, even if the amount raised from the short sale does not clear all the mortgage amount.
Filing for Chapter 13 Bankruptcy prevents your house from being foreclosed on and allows you to negotiate a repayment plan with the lender. The bankruptcy lasts for 3-5 years. You can sell the house in this period, but the lender and the court have to be involved. Below are the steps for selling a house in Chapter 13 bankruptcy.
The first step to selling a house in bankruptcy is to inform your lawyer before taking any steps. Selling a house in Chapter 13 bankruptcy is a complex process with numerous legal formalities. Therefore, you need a bankruptcy lawyer to walk you through it.
Once you have informed your attorney, they will inform your trustee and the lender. They should also inform your real estate agent. During this time, the attorney will prepare the necessary documentation for filing a motion to sell the house with the bankruptcy court.
The entire preparation process can take up to 45 days as the paperwork takes time to prepare, and you also need to allow enough time for the lender and trustee to review and consider your proposal to sell the house. Note that the lender and trustee have the discretion to reject the motion before it is filed in court.
The attorney will then file a motion to sell the house in bankruptcy court. To file the motion, they will be required to provide all the necessary paperwork about the house, including names of the creditors, other stakeholders with a lien on the property, sale price, a home appraisal report indicating the appraisal value, and a breakdown of how the proceeds will be used.
For you to stand a chance for approval, you must indicate that the proceeds will go towards paying off the mortgage and other costs associated with the sale of the house.
The trustee will assess the motion presented and pertinent information about the property to determine if the sale will be in the best interest of the creditors. They should also confirm that the house is not exempt. They then must convince the court that selling the house won’t be detrimental to the creditors.
Once the motion is approved, you list the house for sale. It is best to use a real estate agent with experience in selling houses that are in bankruptcy. They will help you to find potential buyers, vet offers, and narrow down to the most suitable ones. They also handle the legal and paperwork associated with the sale and oversee closing.
Once the real estate agent closes the sale, they should issue you with a document referred to as a statement of sale. The document indicates the final sale price of your home, any closing costs that have been deducted, and the remaining proceeds. You should give your trustee the statement of sale as soon as possible.
The trustee pays their fees from the proceeds and distributes the remaining amount to the creditors.
If the proceeds from the sale of the house are enough to pay off your repayment plan, your debts will be discharged within a few days of the sale. The trustee will order the bankruptcy court to discharge a debt. Once the discharge has been executed, you will receive a decree – a document that proves you are no longer bankrupt.
Expert Insight From An FHA Lender:
“Bankruptcy is another bump in the road of life that any homeowner can navigate with the right advice, says Peter B, an FHA lending specialist. “As an FHA lender, many people ask me, “Can I get an FHA loan with a bankruptcy” to which I respond, absolutely; however, because of the bankruptcy, there are some extra steps to navigate. My team and I can talk to you about your specific situation.”
The quickest way to sell a house in bankruptcy is to cash buyers. Cash buyers are usually real estate companies and investors willing to buy your house as is. If there are major issues in the house, you do not need to fix them as the cash buyer will buy the house with them.
The sale process is fast, and you can pay your debts as soon as possible.
The only downside with this kind of buyer is that they purchase the house at a much lower price than fair market value. However, if you have paid a significant part of your mortgage, the amount they offer should cover the difference. If not, sell them the house in a short sale and appeal for a deficiency judgment on any outstanding amount.
You should file for bankruptcy as a last resort due to its negative effect on your credit score. However, if you find yourself in a situation where you are overwhelmed by your debts, filing for bankruptcy can be useful in managing your debt. Furthermore, selling your house while in bankruptcy can help you pay off your debts for a fresh start.
Selling the house is easier If you file for Chapter 7 bankruptcy instead of Chapter 13. When selling your house under Chapter 7 Bankruptcy, the key is to allow 3-6 months for the case to be discharged and closed. The process is straightforward, and you do not require approval from the court.
On the other hand, you can sell the house during a Chapter 13 bankruptcy. The process involves your trustee, the court, and the lender at every step. Your attorney must file a motion with the court to approve the sale. The lender also has to approve the sale. Proceeds from the sale go towards settling your debts and any charges associated with the sale and court process.
If your home’s equity is higher than the amount paid, then a traditional sale is most appropriate, and you have the right to any amount that remains from the proceeds once you have settled the debts. If the value is lower, it will go through a short sale.
If you are looking for a cash buyer for your house, contact webuyhousesindenver.org to sell your house fast and get a quote for your house as is.
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