Selling a house during bankruptcy

Bankruptcy changes who controls the sale

When you file for bankruptcy, your property generally becomes part of what's called the bankruptcy estate. That includes your house. From that point on, selling the house isn't only your decision. Depending on the type of bankruptcy, the trustee assigned to your case or the bankruptcy court has a say in whether, when, and how the house is sold.

That doesn't mean you can't sell. It means the sale has to go through the right process. We've worked inside that process, and we're comfortable with the extra steps and time it takes.

We're not attorneys, and nothing here is legal advice. Bankruptcy is complicated, and the details of your case matter a lot. Your bankruptcy attorney should be your first call before you sign anything.

The two most common types for homeowners

Chapter 7

Chapter 7 is often called liquidation bankruptcy. A trustee is appointed to review your assets and debts. Property that isn't protected by exemptions can be sold by the trustee to pay creditors, and many remaining debts are discharged.

Whether your house is at risk in a Chapter 7 depends largely on how much equity you have and how much of it is protected by the homestead exemption. New York has its own homestead exemption amounts, which vary by county and are adjusted periodically, and in some cases filers may be able to choose federal exemptions instead. If your equity is fully protected, the trustee may have no interest in selling the house. If there's significant unprotected equity, the trustee may sell it.

In a Chapter 7, if the trustee decides to sell the house, the trustee typically controls the sale, though you may be involved. In some cases, the debtor and trustee work together on a sale to a buyer like us.

Chapter 13

Chapter 13 is a repayment plan. You keep your property and pay creditors over a period of years under a court-approved plan. Chapter 13 is often used by homeowners who want to catch up on mortgage arrears and keep their house.

If you're in a Chapter 13 and decide to sell your house, you generally need the court's permission. Your attorney will file a motion asking the court to approve the sale, and creditors and the trustee will have a chance to respond. The sale proceeds are typically used to pay off the mortgage and liens, and the plan may need to be adjusted.

Selling before filing

Some homeowners sell their house before filing bankruptcy, or instead of filing. Selling can free up equity to pay debts directly and may make bankruptcy unnecessary. But there are important rules about transfers made before a bankruptcy filing. A sale for fair value is generally treated differently than giving property away or selling it to a relative cheaply. Talk to a bankruptcy attorney before you sell if bankruptcy is on the table at all.

The automatic stay and foreclosure

When you file bankruptcy, an automatic stay usually goes into effect. That generally pauses most collection actions, including many foreclosure proceedings. That pause can give you time to sell the house in an orderly way instead of losing it at auction. The lender may ask the court to lift the stay, especially if payments aren't being made, so the pause may not last indefinitely.

How a sale typically works during bankruptcy

1. You and your attorney decide that selling makes sense.
2. You contact us, and we walk through the house once.
3. We send a written offer to you and your attorney, or to the trustee.
4. Your attorney or the trustee prepares the necessary paperwork. In Chapter 13, that often means a motion to sell. In Chapter 7, the trustee may handle the sale directly.
5. Creditors and interested parties may receive notice and have an opportunity to object.
6. The court approves the sale, if approval is required.
7. We close, and proceeds are distributed according to the court order and the bankruptcy rules.

This takes longer than a regular sale. Court calendars, notice periods, and objection deadlines all add time. We plan for it.

Why a cash buyer helps in bankruptcy

Trustees and courts care about two things: getting a fair price and getting the sale done. A buyer who needs a mortgage adds uncertainty, because their financing might fall through after the court has approved the sale. A cash buyer removes that risk. We also buy as-is, which matters because many homes in bankruptcy have deferred maintenance that the homeowner couldn't afford to address.

Your exemption and your share of the proceeds

If your house is sold during bankruptcy, the mortgage and any valid liens are paid first. Then, depending on your situation, you may be entitled to receive the amount protected by your homestead exemption. The rest may go to the trustee for creditors. Your attorney can estimate how this would work in your case.

Other complications we can work with

• Mortgage arrears or a pending foreclosure
• Property tax liens or judgment liens
• A co-owner who isn't in bankruptcy
• Houses that need significant repairs
• Tenants or family members living in the house

When selling may not be the right move

Sometimes keeping the house through a Chapter 13 plan is the better choice, especially if you have a stable income, want to stay, and can afford the plan payments. Other times, a loan modification can resolve the mortgage issue without bankruptcy. Selling isn't always the answer, and we'll never pressure you toward it.

Questions to ask your bankruptcy attorney

• Is my home equity fully protected by an exemption?
• Will the trustee want to sell my house?
• Do I need court approval to sell in my case?
• How will the sale proceeds be distributed?
• Should I sell before filing, during the case, or after discharge?
• How does a sale affect my repayment plan?

Selling after bankruptcy

If your case is over, and you received a discharge, your ability to sell is generally back to normal, though certain liens may survive bankruptcy, like a mortgage. If you want to sell after discharge, we can buy the house like any other.

A fresh start

Bankruptcy exists to give people a fresh start. If selling the house is part of yours, we'll do our part to make that sale clear, fair, and as simple as the process allows.

What trustees look for in a buyer

Trustees have a duty to creditors, so they want a fair price, a clean process, and a buyer who will actually close. They also want as few complications as possible. A cash buyer who can document their funds, who doesn't need repairs, and who is willing to wait for court approval checks those boxes. If your trustee wants to market the property more widely or entertain higher offers, that's their call, and we'll respect the process.

Common worries

Will I lose everything if I sell during bankruptcy?

Not necessarily. Your homestead exemption may protect a portion of your equity, and that amount generally goes to you.

How long will I be able to stay in the house?

That depends on the court process and the closing date. We can often build in time after closing for a move, subject to whatever the trustee or court allows.

Does a bankruptcy sale show up differently on my credit?

The bankruptcy itself is reported. The sale of the house is simply part of resolving the case.

Can I choose which buyer to sell to?

In a Chapter 13, you and your attorney usually propose the sale. In a Chapter 7, the trustee often controls the choice. Either way, the court may need to approve it.

Liens and mortgages in bankruptcy sales

In a bankruptcy sale, the mortgage and other valid liens on the house generally get paid from the sale proceeds, in order of priority. Some liens may be challenged or reduced in the bankruptcy process, depending on the circumstances. For example, certain judgment liens may be avoidable if they impair an exemption. Your attorney can tell you whether any liens on your property can be addressed this way, which could increase what you or your creditors receive.

Selling a house with co-owners in bankruptcy

If you own the house with someone who isn't in bankruptcy, such as a spouse or relative, the sale gets more complicated. The trustee may only have authority over your share, and the co-owner's rights must be respected. In some situations, the bankruptcy court can authorize the sale of the entire property, with the co-owner receiving their share. Talk to your attorney about how this applies to you.

Property taxes during bankruptcy

Unpaid property taxes don't go away in bankruptcy. They're typically secured by the property and paid from the sale proceeds. Keep your property taxes in mind when estimating what you might receive from a sale.

Keeping the process transparent

The bankruptcy process depends on full disclosure. Make sure your attorney knows about every offer you receive, every conversation with a buyer, and every agreement you consider. We'll be transparent with you, your attorney, and the trustee throughout.

After the sale

Once the sale closes and proceeds are distributed according to the court's order, the house is no longer part of your bankruptcy estate. You'll be able to focus on the rest of your case and on the fresh start bankruptcy is meant to provide.

Timing a sale around a bankruptcy filing

The timing of a sale relative to a bankruptcy filing can affect exemptions, how proceeds are treated, and whether court approval is needed. That's why the order of operations matters, and why your attorney should guide it.

Choosing an attorney

Bankruptcy law is specialized. Look for an attorney who regularly handles consumer bankruptcy cases in the Eastern District of New York, which covers Long Island. Many offer free or low-cost consultations. Ask how they handle cases where selling the house is part of the plan.

How the sale works

Questions