If you can't afford to pay your bills, bankruptcy can help you discharge your debts and start over. As soon as the bankruptcy case is closed, you can sell any of the assets you still own, including your home. However, selling your home after bankruptcy may be problematic if you plan to by a new one.
Bankruptcy and Real Estate
During bankruptcy, the court imposes an automatic stay that stops all collection actions, including foreclosure. If you have filed Chapter 7 bankruptcy, your home may or may not be exempt from the proceedings. If the home is not exempt, your bankruptcy trustee may sell it to help pay your debt. However, if the home is exempt, your trustee can't sell it, and you will retain possession of it even after the case is closed.
After bankruptcy, your lender can initiate or continue with foreclosure proceedings if your mortgage is in default. However, you can also attempt to sell the property at this time, regardless of the status of your mortgage. If you can find a buyer who is willing to pay at least your mortgage balance, you can use the funds from the sale to eliminate the mortgage entirely, and you may even earn a profit. If you can't find a buyer willing to pay that much for the home, the lender may agree to a short sale, which allows you to sell the home for less than what you owe.
Buying a New Home
Although you can sell a home immediately after bankruptcy, you can't buy one unless you are able to pay cash. In fact, bankruptcy can prevent you from qualifying for a conventional mortgage for seven years. You may be able to qualify for a mortgage insured by the Federal Housing Administration after only two years have passed, but you must show that you have re-established good credit since the bankruptcy case was closed.
Even though you can't typically buy a new home immediately after bankruptcy, you may be able to find a place to rent if you decide to sell your house anyway. However, many landlords require credit checks, so the bankruptcy may still affect you. In some cases, it may be possible to sell a home while your bankruptcy case is still open. To do so, you must obtain permission from the court. However, according to Bankrate, lenders are often hesitant to work with sellers who are currently under bankruptcy protection, so potential buyers may have trouble securing financing.
- Bankrate.com: Can You Dismiss Bankruptcy to Sell Home
- Fannie Mae: Selling Guide
- HUD.gov: Mortgage Credit Analysis for Mortgage Insurance on One- to Four-Unit Mortgage Loans (4155.1)
- U.S. Courts. "Federal Court Finder." Accessed May 18, 2020.
- U.S. Courts. "Chapter 7 Means Test Calculation." Accessed May 18, 2020.
- U.S. Dept. of Justice. "LIST OF APPROVED PROVIDERS OF PERSONAL FINANCIAL MANAGEMENT INSTRUCTIONAL COURSES (DEBTOR EDUCATION) PURSUANT TO 11 U.S.C. § 111." Accessed May 18, 2020.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.