Bankruptcy
Selling a Home During Chapter 7 or Chapter 13 Bankruptcy
A home is the largest asset most personal bankruptcy filers own, and its disposition is often the most consequential decision in the case. Whether the home can be kept, must be sold, or can be sold voluntarily depends on the chapter filed, the equity in the home, the state’s homestead exemption, and the specific circumstances the trustee is looking at. None of this is automatic, but most of it is predictable.
Chapter 7: when the trustee gets involved
In a Chapter 7 case, a court-appointed trustee takes legal control of the debtor’s non-exempt assets and liquidates them to pay creditors. For a home, the calculation is: equity in the home minus the state’s homestead exemption. If that figure is positive, the trustee may sell the home. If it is negative or zero, the trustee will typically abandon the property back to the debtor.
Homestead exemptions vary enormously by state. Florida and Texas exempt unlimited home equity (with some caveats). California exempts $300,000 to $600,000 depending on county. New Jersey exempts virtually nothing. The exemption is the single most important number in a Chapter 7 home analysis.
A debtor who wants to sell the home during Chapter 7 needs trustee approval. The sale is typically allowed when the trustee’s share of the proceeds (above the exemption) exceeds the trustee’s costs to sell.
Chapter 13: more flexibility, more involvement
In Chapter 13, the debtor proposes a 3-to-5-year plan to repay creditors, often while keeping the home. Selling the home during a Chapter 13 typically requires court approval, with the proceeds either funding the plan, paying off the plan early, or funding a transition to a different residence.
A motion to sell in Chapter 13 is a routine filing that an experienced bankruptcy attorney handles in the regular course of the case. Approval typically takes 30 to 60 days. The sale itself can close on a normal timeline once approved.
How a cash sale fits
Bankruptcy sales generally favor speed and certainty. A trustee or court will look favorably on a cash buyer with proof of funds and a track record of completing closings on time. The downside risk of a buyer falling out of contract is more disruptive in a bankruptcy case than in a normal sale, because court approval timelines do not easily accommodate restarts.
We have purchased multiple homes during active Chapter 7 and Chapter 13 cases. The transaction structure is the same as any other sale, with two additions: the buyer provides documentation supporting the offer to the trustee or court, and the closing is conditioned on the order approving the sale being final and non-appealable.
What the homeowner should ask their attorney first
Before talking to any buyer, a debtor should ask their bankruptcy attorney three questions. First: what is the homestead exemption in this state, and how does it apply to the case. Second: does the trustee or court need to approve any sale, and what does that approval process look like. Third: how do the proceeds of a sale interact with the case — do they fund the bankruptcy plan, get paid to creditors, or get distributed to the debtor.
The answers determine whether selling is even worth discussing, and on what timeline.
Common questions
Questions readers ask about this.
- Can I sell my home while in Chapter 7?
- Sometimes, with trustee approval. The trustee’s decision usually depends on whether there is non-exempt equity in the home that creditors could claim.
- Can I sell my home while in Chapter 13?
- Generally yes, with court approval. Your attorney files a motion to sell, the court approves it (typically 30 to 60 days), and the sale closes normally.
- Will the sale proceeds go to me or to my creditors?
- Depends on the case. Equity above the homestead exemption typically goes to the bankruptcy estate. Equity below the exemption typically belongs to the debtor.
Related reading
Other situations we cover.
This article is general information, not legal, tax, or financial advice. Every situation is different. Consult a licensed professional before making decisions about your property.