When to Sell Your Home if you Plan on Declaring Bankruptcy

October 19, 2022

The best time to sell your home during the bankruptcy process depends on what type you’re declaring. Chapter 7 and 13 are different options that may require varied approaches when the time comes to sell.

For one reason or another, you’re considering selling your home during the bankruptcy process. As you’re going through this difficult time in your life you’ll be forced to make many important decisions. To decide what’s best for your situation, it’s best to evaluate your options and understand the process.

Selling a home can be daunting in any circumstance, and it can feel even more so during a difficult time in life. Still, with a little preparation you’ll know when to sell.

Sell your house before declaring bankruptcy

There are no restrictions against selling your home prior to making a declaration. However, you might run into trouble if you sold the home to avoid paying creditors. Generally speaking, it won’t negatively impact you to sell your house before declaring bankruptcy if you need the money for essentials. In some cases, it might be a better financial decision to wait until after the to sell.

Before selling your home at any point in the process, it’s best to review bankruptcy laws in your state and consult with a local bankruptcy attorney.

Chapter 7

If you decide to sell your home before declaring chapter 7 bankruptcy, your ability to protect the proceeds depends on the laws of your state and if the property is exempt. Some states have laws that protect the sale proceeds. As well, you may be able to put at least some of the sale proceeds toward another home using a homestead exemption.

During chapter 7, a trustee may sell any nonexempt property (or use nonexempt property proceeds) to pay unsecured creditors. Depending on how much equity you have in your home, and how much of it is exempt vs. non exempt, your home may be sold as part of the bankruptcy. Homestead exemptions usually protect some amount of money from a home sale, but those numbers vary by state.

Chapter 13

If you decide to sell your property before declaring chapter 13 bankruptcy, make sure you understand this type of bankruptcy and how the sale could affect your losses. In chapter 13, the general rule is that your unsecured creditors will receive your disposable income or an amount of money equal to the value of any nonexempt property — whichever is the greater amount.

During chapter 13 bankruptcy, you won’t be forced to sell your home. If your property is exempt, it’s yours to keep. If it’s nonexempt, you’ll be responsible for paying your unsecured creditors the value of your nonexempt property via a payment plan.

Sell your house during bankruptcy

It’s possible to sell your house during bankruptcy, but it’s not as simple as tacking a for-sale sign in your yard. Different types of require varying approvals from the court and/or paperwork in order to sell your house. In some scenarios it might not be advised or approved. A bankruptcy attorney can provide specific guidance for individual situations as every situation is different.

Selling with Chapter 7 bankruptcy

If you want to sell your home during your chapter 7 bankruptcy, you need to get permission from the court. Often the trustee will be in charge of selling your home. This depends on your state’s laws. It also depend and if the property is exempt.

Selling with Chapter 13 bankruptcy

There is no danger of anyone else selling your home in chapter 13 bankruptcy. If you want to sell your home during chapter 13 bankruptcy, you will have to get approval for the terms of the sale from your bankruptcy judge. However if you have a heavy load of nonexempt assets (including a home), you might not want to file Chapter 13 if you don’t make enough money to meet the required payments to keep them.

If you decide to sell your home during chapter 7 or chapter 13 bankruptcy, selling through Sundae may be an option. You’ll want to consult with your attorney to see if selling during bankruptcy proceedings makes sense.
Sundae offers homeowners like you an easy way to sell as-is, quickly. With our marketplace driving competition, you could potentially sell for more than you thought. This may be a tremendous asset to those in need.

Sell your house after declaring bankruptcy

After your bankruptcy is concluded, most courts agree that you are free to sell your property without fear of the trustee taking the proceeds. However, if you want to sell your current home and buy a new one, you may need to pay cash for your next home or get creative with financing:

How to exempt earnings after you sell your house

If you sell your home in the midst of a bankruptcy filing, you need to check if there’s an exemption in your state that protects your equity. Most states have a homestead exemption (ranging anywhere from $10,000 on up), which allows you to reinvest that money into a new property without penalty for a short period of time.

Sundae can help if you need to sell your home as-is quickly, no matter the reason. Sundae’s expertise is selling homes for great prices with quick turnaround. After all, Sundae is the only marketplace that gets your as-is home sale in front of a large network of investors — a move that ensures homeowners could get the highest possible offer. It’s all about peace of mind and support, no matter what you’re going through, at Sundae.

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Erin B

Erin Behan is a writer and editor covering real estate investor strategy for Sundae. She's lived in L.A., New York, and Atlanta and currently resides in Portland, Oregon, where she writes and edits for a number of outlets, including WebMD, Farmers Insurance, and Vox Creative. She spends her free time hiking with her two boys, snuggling with her cat, and enjoying the best of the Pacific Northwest.