Selling Your House in Chapter 7 Bankruptcy: Everything You Need to Know

Reviewed by: Brandon Brown

Diving into the real estate market can be tricky, but doing so while facing Chapter 7 bankruptcy can make things more complicated. Homeowners in this situation often wonder, “Can I sell my house while in Chapter 7?” and how long it takes to sell a house in this situation.

The short answer is yes, but it involves a series of steps that require careful planning and legal permits. But don’t worry, this article will guide you through the important information you need to understand the process of selling a home during bankruptcy and provide clear steps and tips to help you make informed decisions.

Understanding Chapter 7 Bankruptcy and the Trustee’s Role

Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” helps you get rid of most unsecured debts, including credit card debt, medical bills, unpaid rent, and more. However, it also means that you may have to liquidate or sell off some of your assets to pay back your creditors. Your house, as part of your bankruptcy estate, may be one of those assets.

The bankruptcy trustee, a person appointed by the court to oversee your case, has the authority to decide which of your assets are sold to pay debts. They ensure that the bankruptcy process is fair for both of you and those you owe money to.

But before you can sell your house in Chapter 7 bankruptcy, you’ll need approval from the bankruptcy court and the trustee. The trustee’s job is to get as much money as possible from your assets to pay back unsecured creditors. They have the authority to decide if your house should be sold or protected based on its value. That said, it’s important to understand that the trustee has a lot of control over whether your house can be sold and how the money from the sale will be used.

Exemptions and Protecting Your Home

In some cases, you may be able to keep your home even during Chapter 7 bankruptcy. Certain laws allow exemptions that protect some or all of your home’s value, depending on how much home equity you have or the portion of your home’s value that belongs to you and not the bank. Federal and state laws, such as the homestead exemption, allow you to shield a portion of your equity from creditors.

For example, in California, the homestead exemption can protect up to $600,000 of equity for some homeowners. If your home’s equity is within this limit, you may be able to keep it, and the trustee might not require you to sell it. However, if your home is worth more than the amount you’re allowed to protect under this exemption, the trustee may decide to sell it and use the money to pay back your debts. Knowing the specific exemptions in your state is important for you to figure out if you can keep your home or if it will need to be sold.

Selling Your House During Chapter 7 Bankruptcy

If selling is your only option, here are the legal requirements and steps you must follow:

Get Trustee Approval – Before you can sell your house, the bankruptcy trustee must approve the sale. They will evaluate how much equity or value is in the home and confirm whether the selling benefits your bankruptcy case.
Appraise the Property – Once approved, the house needs to be appraised to find out its market value. This helps make sure that your house is priced fairly and will bring enough money to pay back your creditors.
List the Property – After getting an appraisal, you can now list your home for sale. It’s helpful to work with a licensed real estate agent who is familiar with bankruptcy proceedings to make the process easier.
Court Approval – Even after you accept an offer, the bankruptcy court must approve the sale before it can proceed. This ensures everything is done fairly and benefits both you and your creditors.
Manage Sale Proceeds – Any sale proceeds left over after paying off exempt amounts (protected by law) will go to paying off your secured debt and creditors. However, you’ll still need to work with the trustee to distribute these funds according to the bankruptcy code or rules.

Challenges and Considerations

Selling a home during Chapter 7 bankruptcy comes with a couple of unique challenges. One common obstacle is delays, as the trustee and court approval process can take time, potentially affecting market timing or the price of your house. Additionally, objections from the trustee may arise if they feel that the home isn’t being sold for enough value or if there are conflicts over whether the house should be exempted.

Market conditions also matter. If you’re in a slow market, selling the house fast may be difficult, which could further complicate your bankruptcy case. Additionally, if you’re planning on putting an offer on a house before selling yours while under Chapter 7 bankruptcy, this may further complicate things as any assets you acquire could be subject to court review.

Financial considerations like tax implications or capital gains from the sale may also add to the challenge. These challenges make it important to consult both a bankruptcy attorney and a real estate professional to ensure that you fully understand the consequences of certain decisions.

Simplify Your Home Sale During Bankruptcy with FlipSplit

While the process of selling a house during Chapter 7 bankruptcy can be overwhelming, understanding the steps and challenges is the first step toward recovery. By working closely with your bankruptcy lawyer and real estate agent, you can navigate the sale and comply with legal requirements, maximizing your potential outcomes.

At FlipSplit, we understand the challenges homeowners face during financial difficulties. If you’re looking for a cash buyer to help sell your house quickly and easily, our team can offer a solution that minimizes hassle and maximizes your returns. We’re here to provide support every step of the way, ensuring a smooth and transparent process from start to finish!

Once the sale is complete and your debts are paid off, you’ll have the opportunity to rebuild your financial future. Whether it’s by downsizing to a more affordable property, renting temporarily, or using the sale proceeds to pay down debt, the goal is to get back on your feet after bankruptcy with stronger financial knowledge.

Reviewed by: Brandon Brown

As a long-time Asset Manager, Investor, Real Estate Agent, and Broker/Owner of BayBrook Realty in Orange County, Brandon Brown is one of FlipSplit’s lead Real Estate experts. Having worked on over 2,000+ real estate transactions, Brandon brings a depth of knowledge that ensures clients are appropriately treated with honesty and integrity. His insights and advice have been published in numerous blogs beyond FlipSplit, and he keeps a close eye on market trends and statistics, which are updated weekly on his social media pages. Outside work, you can find him participating and serving at church, cycling, mountain biking, surfing around Orange County and beyond, and enjoying time with his wife and two daughters.