Can I Sell My Included House After a Bankruptcy Discharge?
When you file for bankruptcy protection, you must list all your assets, debts and income. If you own a home, your home may be included as an asset and a debt if you owe money on the home. What happens to your home during the bankruptcy depends on which chapter you file under, how much equity you have in the home and whether you reaffirm the debt. If you are allowed to keep the home when the bankruptcy is discharged, you may sell the home if you choose.
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Bankruptcy Chapters
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How real property is treated in your bankruptcy depends, to a great extent, on what chapter you file under. An individual may file under a Chapter 7, 11, 12 or 13; however, Chapters 7 and 13 are the most commonly used. Chapter 11 may be used if there are business assets to protect, while Chapter 12 is for family farmers or fishermen. In a Chapter 7 bankruptcy, all nonexempt property becomes part of the bankruptcy estate and may be sold by the trustee to pay off your debts. Under a Chapter 13 petition, you develop a plan to "reorganize" your debts and pay the majority of them off over the next three to five years. In most cases, your reorganization plan contemplates continuing to pay on your mortgage.
Exemptions
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Although bankruptcy falls within the jurisdiction of the U.S. federal court system, individual states may provide residents exemptions in addition to those provided by the federal government. You may, for example, be entitled to a homestead exemption up to a certain dollar amount as determined by the state where you are a resident. If you file a Chapter 7 petition and have more equity in your home than the exemption allows, the trustee may sell the home to help pay off your debts. In a Chapter 13, excess equity may be considered an asset, but you will not be forced to sell the property in most cases.
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Reaffirmation
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If you are not required to sell your home in a Chapter 7, or you file under another chapter, you may be required to enter into a reaffirmation agreement with your lender to keep your home. A reaffirmation agreement, as the name implies, simply puts in writing that you and the lender have agreed to "reaffirm" the debt. Once you reaffirm the debt, you no longer are protected by the bankruptcy petition and must abide by the terms of the loan or face foreclosure.
Discharge
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In a Chapter 7 case, your home either is sold by the trustee to pay off debts, in which case you no longer have title to the property, or it qualifies for an exemption and reaffirmation. If your home qualifies as an exemption, and you reaffirm the debt, you are free to sell the home after the bankruptcy discharge as long as the loan is paid off when you sell the home. If you file a Chapter 13, your bankruptcy case is not discharged officially until you successfully complete the reorganization plan, which typically takes about three years. If you reaffirm the mortgage and continue to pay on the loan, you may sell the home after your Chapter 13 discharge.
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