Bankruptcy is a legal process designed to give you a fresh start by relieving you of heavy debt. There are generally two types you can go for: Chapter 7 and Chapter 13.
In Chapter 7, some of your property gets sold and the proceeds go directly to your creditors. This process is sometimes also called liquidization. You won’t be left totally impoverished of course. Depending on where you live, you could be entitled to a homestead exemption, which protects the home you currently reside in from creditors. If the combined amount of your exemption together with your mortgage loan exceeds the value of your home, the court isn’t likely to order a sale. That’s because the home has no value to the bankruptcy estate and won’t do enough to appease it anyways.
In Chapter 13, you create a payment plan and make your payments to your creditors according to that plan. On average, a plan will span over 3 years but can go up to 5 years. The court will usually have a final say on the finer details of your plan, as it will ultimately depend on your income and situation. If you experience a sudden dip in your income and find yourself unable to pay according to your Chapter 13 plan, you might be able to negotiate with the bankruptcy trustee handling your case. Whether you’re under a Chapter 7 or 13 case, going bankrupt means you sorely need money. Under Chapter 13, that might be to pay off your payment plan. Under 7, on the other hand, it might be for other various expenses. Either way, they bear the same truth: you need funds. So while it’s definitely a last-resort option, selling your home just might be the best option for you to attain those funds. While it may not appear to be the best option, here are a few reasons why it is:
Keeping the proceeds – Most courts would agree that selling a home after your bankruptcy case has closed means that the bankruptcy trustee will not be able to seize any of the proceeds. That is to say, if you have managed to exempt the equity of the home and are still in possession of it after the case.
Easier than during the case – Particularly in the case of a Chapter 7 bankruptcy, the court subjugates all your property. If you want to sell your home in the middle of the case you have to obtain permission from the court.
The court may set a home sale as a provision in your case, but selling it of your own discretion is a completely different matter. That being said, it’s better to wait until after the case has been closed before you decide to sell.
Paying off your mortgage – For the duration of a bankruptcy case, the court freezes any foreclosure proceedings your creditor may have begun. But as soon as the case has been absolved, your creditor will be able to continue with such proceedings.
However, if you can find a buyer who is willing to pay the value of your mortgage balance, you can use the proceeds to actually pay off your debt. On the other hand, if the buyer is only willing to settle for a lower price, you can propose a short sale to your lender.
A short sale will allow you to make a sale on your home for a price lower than your outstanding mortgage balance, the proceeds of which will go directly to your creditors. Bear in mind that a short sale is actually an option best availed before filing for bankruptcy as it does much less damage to your credit score.
Now that you’re informed on all the procedures and benefits of selling your home after bankruptcy, you must be wondering: how am I supposed to pull all this off?
Housing Solutions has your back!
Are you currently going through bankruptcy proceedings? We can write you a cash offer for you to present to your bankruptcy attorney that will help you as you make your way through the process.
Already through with the bankruptcy proceedings and just figuring out how to sell your home? We can give you the best cash offer possible for your home, so you can make a quick close. You’ll even get some assistance from our professional agents to help you find a new rental. Another option you can avail is selling your home directly to us and we can lease it back to you while you’re rebuilding your credit. After which, you can buy the home right back!
What are you waiting for? Contact us now on our website, and we can give you the best solutions to your real estate dilemmas!