What you will learn from reading this article:
- Facts about selling your home while going through bankruptcy
- Details about Chapter 7 and Chapter 13 Bankruptcies and your house
If you are struggling to pay your mortgage and other bills, the good news is that the CARES Act (Coronavirus Relief and Economic Security) has extended the deadline for when the foreclosure moratorium is due to expire. It was due to end on March 31st, 2021, but now June 30, 2021, is the expiration date.
The not-so-good news is that a moratorium is not the same as amnesty. The forbearance agreement that you entered into with your mortgage lender has allowed you to go several months without making mortgage payments, but you will still owe those payments when the foreclosure moratorium expires. There is nothing to stop your lender from demanding all of your missed payments after June 30, and you will be foreclosed on if you aren’t able to pay this (by now considerable) debt.
If you don’t have a federally connected mortgage (although almost 70% of homeowners do have mortgages somehow supported by the federal government), you weren’t able to take advantage of the moratorium in the first place, so you are probably facing pressure from your lender and are concerned about being foreclosed on.
In both of these cases (money that will be due or money that is overdue and with no way to pay it), you are probably at the point where you are thinking about selling your house and also about declaring bankruptcy.
This is a situation where timing can be extremely important. You will need the advice of an experienced bankruptcy attorney as soon as possible!
Can you sell your house if you are in a foreclosure situation?
Yes, but it is extremely difficult for the following reasons:
- Buyers will know that you have your backs up against the wall and will take advantage of that by making low offers.
- Even more likely is the fact that buyers will not want to take the risk of buying your house in case you are foreclosed on before the sale goes through (in which case, there can be no closing because you will no longer own the house).
- Buyers also don’t want to involve themselves in a property that may have liens against it.
Chapter 7 Bankruptcy
- If you file for Chapter 7 bankruptcy, you may be able to stay in your house for a little while longer before you are foreclosed on.
- You may also be able to discharge all of your other debts before those creditors can put a lien on your house.
- Once you take away the worry and constant pressure of creditors constantly contacting you, it will be easier to focus on getting your house on the market.
- If your house sells after you have safely declared Chapter 7 bankruptcy, you can keep a portion of your equity rather than having it go to your creditors. In Indiana, the Homestead Exemption allows you to keep $19,300 of your equity. If you and a spouse own the house jointly, you each get that amount and you could be entitled to keep more. (During Chapter 7 bankruptcy, the Trustee will not sell your house if the Bankruptcy Homestead Exemption covers all of the equity.)
Chapter 13 Bankruptcy
Chapter 13 is a personal reorganization bankruptcy. It provides protection from creditors, while a plan to deal with debts is put together.
- If you file for Chapter 13 bankruptcy, you can buy yourself more time to consider selling, although you will have to resume regular mortgage payments and cure arrears through the reorganization plan to stay long-term.
- A Chapter 13 filing can stop foreclosure up to the point of a sheriff’s sale. The reorganization plan then gives you three to five years to catch up on payments you were behind on as part of the monthly plan payment.
- Before you can sell your house (or buy another one), you have to get approval from your Chapter 13 Bankruptcy Trustee or the Court.
- The Homestead Exemption Act is the same as in Chapter 7, so you are still able to keep $19,300 in equity per homeowner and sometimes more.
Sawin & Shea Is Here to Help
No situation is completely straightforward, so don’t try to maneuver the intricacies of Indiana’s bankruptcy codes on your own. At Sawin & Shea, LLC, we understand that hiring an attorney to help you file bankruptcy is scary. We are committed to providing compassionate and non-judgmental representation to all of our clients. Our attorneys have helped thousands of people just like you get the fresh start they deserve. We are here to help.