Can You Sell Your House After a Bankruptcy Discharge?

It's possible to sell your home after bankruptcy.

You can sell your house under a bankruptcy discharge, if you re-affirm the house as part of the bankruptcy proceedings. A bankruptcy discharge means that you are not responsible for an obligation included in your bankruptcy petition, unless the debt is re-affirmed. If you re-affirm a debt, you are still liable for it and you agree to continue making payments on it. Debts that are re-affirmed are usually secured debts such as auto and mortgage loans. All debts are required by law to be listed in your bankruptcy petition, but obligations that you want to keep must be re-affirmed. You can list these items as re-affirmed on your original petition, or you can agree to do it during the bankruptcy proceeding or after the debt is discharged.

Bankruptcy Procedure

When you file for bankruptcy protection, you need to list all of your creditors. Each of your creditors receives a copy of your petition, and they have an opportunity to question your financial picture in court. If the court does not receive any objections, the judge declares that you are bankrupt and all of your debts discharged.

Discharge

After the discharge, the court is no longer involved in your case. If an obligation was included in the bankruptcy, creditors cannot attempt to collect the debt. If you wish to sell your home before the discharge, the court will object, because your home is an asset and some of your creditors may attempt to force you to sell and distribute your profit to the creditors. The court has specific guidelines regarding your assets. Once the judge finalizes the bankruptcy, you are free to dispose of your assets as you see fit.

Bankruptcy Types

There are two bankruptcy chapters used by consumers. Chapter seven releases all debt listed on your petition unless you re-affirm some of them. Consumers typically re-affirm home mortgages and auto loans because they want to keep both assets. Since both of these obligations are secured debt, the auto would be repossessed and the home would be foreclosed if the debts were not re-affirmed. The other common form of bankruptcy is chapter 13. This is a lengthy procedure where most or all of your debts are paid off over a five-year period. If you want to sell your home while you are paying your debts through chapter 13, you will need the court's permission.

Market Conditions

When property values drop, many homeowners may have little or no equity in their property. If the property owners' only intent is to reduce their obligation by selling at or near the amount owed on the property, the court is unlikely to object. The same is true if the owners have an agreement from their lender to allow a "short sale." A short sale occurs when the lender agrees to allow you to sell your home for less than the mortgage balance. The lender takes a loss, but does not have the expense of a foreclosure.