Can Your House Be Sold While You Are in Bankruptcy?
During bankruptcy, a house can be sold, but it requires the court’s permission. As soon as the petition for bankruptcy is filed, the home and all other possessions of the petitioner become a part of the bankruptcy case. Creditors cannot foreclose on your property while it’s shielded by bankruptcy, but the same laws prevent you from selling your own house without the specific permission from the bankruptcy court. In some cases, the bankruptcy trustee can request permission from the court to sell the home in order to satisfy debts listed in the bankruptcy.
Since Chapter 7 bankruptcy is a liquidation of assets it makes it difficult to sell a home. If a bankruptcy petitioner wishes to sell their home, the first step is to obtain the court’s approval as required. In the same case, if the court-appointed trustee wishes to sell the home in order to come up with funds to pay off creditors in the bankruptcy, he or she must also get permission from the court before doing so. In a Chapter 13 bankruptcy, petitioners go through a reorganization rather than a liquidation. This allows petitioners to keep their house or sell it so long as it doesn’t cause financial harm to the mortgage lender (although permission from the court is still required to sell or refinance while in Chapter 13 bankruptcy).
If you are in the midst of bankruptcy and you do decide to sell, a Motion to Sell Real Property must be filed with the bankruptcy court. The formal motion must include: selling price, names of creditors with liens on the property, detailed info on what you will use the proceeds of the sale for, etc.
If the court-appointed trustee decides that the sale of the home would benefit the bankruptcy by satisfying the demands of creditors, they must also provide all the information about the property in addition to he plan for the distribution of the proceeds to creditors. The trustee is responsible for convincing the court that the sale of the home would not be overly detrimental to the bankruptcy filer in order to gain approval of the sale. Part (or all) of the home’s value is protected as “exempt” in most states which minimizing the possibility that the trustee will request a sale of the home.
If you are considering filing for bankruptcy and wish to discuss the possibility of selling your home while your bankruptcy case is open, please get in touch with an experienced southern California bankruptcy attorney at Westgate Law.