Bankruptcy can have significant implications for selling your house, and the impact will largely depend on the type of bankruptcy you file for and the specific circumstances of your financial situation. But just because you are in bankruptcy doesn’t mean you cannot sell your house. There are some further steps you need to take in order to do so, but it can be done. It will also depends on where you are at with the situation. Filing bankruptcy typically means you have debt you cannot or are struggling to repay. Bankruptcy is the legal way to get relief. If you sell a house you may stand to make a profit on it, or at least receive sale proceeds. If you are already in bankruptcy those sale proceeds may need to be directed to creditors. It all depends and is worth talking about. A professional home buyer can go over options with you and present some scenarios for you to decide which, if any, work for you and your situation. Here’s how bankruptcy can affect selling your house:
- Automatic Stay: When you file for bankruptcy, an automatic stay goes into effect. This stay prevents creditors from taking collection actions against you, including foreclosure or repossession of your house. The automatic stay provides temporary relief and allows you time to work out a repayment plan or sell your assets, including your house, in an orderly manner.
- Chapter 7 Bankruptcy: In Chapter 7 bankruptcy, a trustee may be appointed to sell your non-exempt assets to pay off your debts. Your house could be considered an asset, depending on the equity you have in it and the exemption laws in your state. If your house has significant equity beyond the allowable exemption, the trustee may sell it to distribute the proceeds among your creditors.
- Chapter 13 Bankruptcy: In Chapter 13 bankruptcy, you propose a repayment plan to repay some or all of your debts over a three to five-year period. If you want to keep your house and have fallen behind on mortgage payments, Chapter 13 bankruptcy can provide an opportunity to catch up on missed payments through the repayment plan. However, you must continue making regular mortgage payments during this time.
- Selling during Bankruptcy: If you wish to sell your house while in bankruptcy, you will likely need court approval, especially if you are in a Chapter 13 repayment plan. The court will review the proposed sale to ensure it benefits your creditors and does not hinder the bankruptcy process. One interesting fact that few people know is that post bankruptcy you still own your home even if the mortgage debt has been discharged. If you find yourself in this situation, you can still sell your house. The mortgage will have to be paid in full, but you can still sell.
- Valuation Issues: Selling a house during bankruptcy can be complicated if there are valuation discrepancies between you, the buyer, and the bankruptcy trustee. The property’s value must be determined accurately to ensure a fair sale price. Valuation is often an issue in any home selling situation. Sellers think their houses are worth top dollar. Buyers think the opposite. It’s a vicious cycle.
- Credit Implications: Bankruptcy will have a significant negative impact on your credit score, making it more challenging to qualify for a mortgage or obtain favorable terms when buying a new house in the future.
- Exemption Limits: Each state has its own exemption laws that determine the amount of equity you can protect in your home during bankruptcy. If your home’s equity exceeds the allowed exemption, it could be at risk of being sold to satisfy your debts.
It’s crucial to consult with a bankruptcy attorney to understand the implications of bankruptcy on selling your house and to explore the best course of action given your specific financial situation. An attorney can guide you through the process, protect your rights, and help you make informed decisions regarding your property and assets during bankruptcy. Its also advisable to speak with a professional home buyer. An experienced home buyer has likely dealt with bankruptcy properties before and should be able to give you some options depending on your situation. If you have a house you are thinking about selling, or just have questions about us, the process, etc., fill out a form at www.nolabuyshouses.com or give us a call at 504 264 1407.