It seems strange to have a selling blog in the middle of 30 days to Buying a Home in Utah. However, we want to be sure you understand the process of selling a home during bankruptcy. Learning about this should help you when shopping for a home and what situation the seller might be in.
If you want to sell your home and you are in bankruptcy, it can definitely be done. We at C4 Elite Real Estate Team want to show you the best way to navigate the process. Keep in mind, you will need to prepare for a few extra steps while selling your home during bankruptcy. Additionally, do not forget to reference back to Day 5 of our 30 Days to Selling a Home in Utah, How to Buy a Home after Bankruptcy. This blog will help you on the buying side and give you a well rounded picture of the process from both perspectives.
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Selling While in Chapter 13 Bankruptcy
Can I sell my home in a Chapter 13 Bankruptcy?
Again, the answer is YES!! The first and best action you can take is to call you real estate agent. They should be very familiar with the bankruptcy process. The C4 Elite Real Estate Team has agents who specialize in bankruptcies and will ensure it is done correctly. Once you connect with your real estate agent, they will set up a time to go look at your home and put together a Comparative Market Analysis (CMA). A CMA is your home’s value in the current market conditions. At this time, you will also receive net sheet. This will show you the estimate of what you could potentially make from equity in the home sale.
Planning Ahead on Buying
Additionally, you need to consider how and where you will move once you sell your current home. The bankruptcy can also affect this, so having a plan in place well ahead of time is important. Your real estate agent will direct you to a lender. The Lender will require you make at least 12 ON TIME payments to the trustee before you can get another home loan. A pre-approval from the lender is great for peace of mind, knowing you will be able to purchase a new home after you sell your current one.
Your credit may also be low and need to be brought up before you are able to purchase again. If you are looking to rent, be aware that some Landlords may be skeptical about renting to someone with low credit and a bankruptcy. The reason for their concern is, if a person in a chapter 13 bankruptcy does not pay rent and later converts to a chapter 7, the landlord could be out a lot of money. Additionally, they would have no recourse at that time.
Consulting your Attorney
Next you will want to consult with your attorney or their paralegal. Email them a copy of the CMA and net sheet your agent provided you. Here in Utah you are allowed to keep $30,000 in equity per person on title. The rest must go to your creditors in the bankruptcy. Do not change anything on title before consulting with your attorney. Your attorney can review with you how selling an asset like you home can affect your bankruptcy plan.
Selling your Home
If you decide it is worth it to sell your home at that point, your agent will have you sign all the applicable paperwork and get the home up on the market. Your attorney will ask for approval from the court. The sale of the home will be contingent on Court approval. Your agent will have to disclose it to other agents. Sometimes it can be put in the agent remarks. Other times it will have to be done each time an agent reaches out to see your home. Your agent will do their best to keep your bankruptcy out of the public eye. The trustee may ask for a copy of the CMA and net sheet. Their job is to make sure the creditors are getting as much as they can when you sell an asset.
When you go under contract, your agent will send a copy of all documents to your attorney so they can keep the court updated. An updated net sheet will be sent to your attorney so that you can go over what you want to keep and what you need to put towards the bankruptcy. Sometimes it is best for you to put more of your equity into the bankruptcy and keep less, it just depends on your situation.
The sale may take longer than your typical home sale, because of the extra paperwork and approval involved. Having an agent who knows what your attorney needs and how the process works will facilitate a smooth transaction.
Selling After Chapter 7 Discharge
The short answer is yes, you can sell after a Chapter 7 discharge. At this time, you do not need to involve your attorney or the trustee once the discharge has taken place. However, normally assets like a home, are liquidated during the chapter 7. If you are able to keep your home after that process, it may be best not to sell it right away. Especially, if you can afford the payments and you are not falling behind. Having a chapter 7 on your credit report looks bad. Lenders require you wait 2 years before you can apply for a home loan. However, it may be easier to find a rental after a chapter 7 versus while you are in a chapter 13. Many Landlords know you cannot refile a chapter 7 for eight years after discharge. It is best to have a place to move to and locked in before putting your home on the market.
Chapter 13 and Foreclosure
A chapter 13 can stop the foreclosure process, but even while you are in bankruptcy you must pay your mortgage every month. If you continue to fall behind after filing for a chapter 13 bankruptcy, the bank may ask the court for relief to get out of your bankruptcy plan. This allows them to move forward with the foreclosure process. The bankruptcy can still protect you personally from the mortgage company, but they can pursue their debt directly against the asset, your home.
Recourse During Foreclosure Process
You will be getting letters in the mail and notices on your door. DO NOT wait to call a real estate agent! If you want to get any equity out of your home before the bank auctions it off you will need to sell it, and that takes time. Two months, before they tell you your auction date, is preferred. Once you know your auction date you only have 2 weeks to 1 month left, depending on the bank, and that might not be enough time.
This is considered a pre-foreclosure sale; your home may need to be discounted for it to move quickly depending on many factors. Some banks are stricter than others and have different requirements for you to be able to sell before the auction date. Your agent will help figure that out.
If you are in a chapter 13 bankruptcy, your attorney and the court will still need to be part of the process because you are still selling an asset. The rules about how much equity you can keep may still apply depending on the situation.
Start looking for a new place to live as soon as possible. Another bank will rarely lend to you while you are currently in the foreclosure process. Hopefully you can get some equity out of your current home to secure a rental. Even if there is very little equity or if you must do a short sale, it is better to sell it than have a foreclosure on your record.
Do not Wait to Call
The most important thing to remember, if considering bankruptcy, is to always consult a Bankruptcy Attorney. In addition, if you own a home, always consult with and hire a professional Real Estate Agent. Together they can help you navigate the bankruptcy process. We want you to be on the road to better credit and being debt free.
Here at C4 Elite Real Estate team we want to make sure the process, whether traditional or challenged, is smooth and stress free. Call us today with your questions and we can ensure you get the help you need.