After you file for bankruptcy, your home and all other things become part of the bankruptcy case. Although creditors cannot close their property to real estate because it is covered by bankruptcy, you cannot sell your home without the express permission of the bankruptcy court. Can you sell your home while in Chapter 7? 

When you sell your home shortly before or after you go bankrupt under Chapter 7, you can be sure that you will be able to secure the proceeds if your condition provides for a special exemption (law) that allows it – or if you use the proceeds to buy another property qualifying for farm relief. Otherwise, you’ll want to wait for your home to sell until your bankruptcy is over. 

How to sell a house on bankruptcy?

1) Calculate your farm release. The trustee has the right to liquidate all assets that were not declared released. In California, a homeowner can choose between two exclusion lists. The list in section 704 of the Code of Civil Procedure contains the largest exemption from households – up to USD 75,000 if you are single and not disabled, and USD 100,000 for families, with some exceptions. Older homeowners and people with disabilities receive more. The exemption applies to your equity, defined as your current home market minus the money you owe for your mortgage and lien.

2) Attend the first meeting of creditors with the insolvency administrator. This usually happens 30 to 45 days after bankruptcy. Present your claim for dismissal at a meeting or otherwise to your insolvency administrator. If your mortgage and exemption from your household, together with the trustee’s commission and selling costs, exceed the value of your home, you have no capital to distribute, and the trustee will not order the sale.

Can you sell your home while in Chapter 7?

3) Consider the trustee’s answer. If he does not object to your dismissal and finds that he has no assets with sufficient capital to sell, he will give up your assets. According to the bankruptcy law network, this happens in about 95 percent of cases. The trustee submits a “No Distribution Report” that successfully resolves the matter.

4) Receive court documents that officially release your bankruptcy. Your home is now free from Chapter 7 and you again have a legal title to your home.

5) Designate a real estate agent to list real estate and negotiate with potential buyers as usual.

Consult a bankruptcy lawyer

Exemption laws in individual states vary considerably, and the courts have come to other conclusions when they apply income exemption laws. If you have sold a home and plan to file for bankruptcy, or if you intend to sell soon, a qualified bankruptcy attorney can tell you how a bankruptcy court can handle proceeds from your jurisdiction.



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