If you are considering filing for bankruptcy, you may be exploring all of your options for seeking financial stability. Selling your house may be one option on your radar, especially if you are behind on your mortgage, unable to make future mortgage payments, or in a significant amount of debt elsewhere.
Can you sell your house during bankruptcy in Colorado? You generally can, but the process depends on the type of bankruptcy you filed, the equity you hold in your home, and several other factors.
Understanding the Types of Bankruptcy in Colorado
The answer to whether or not you can sell your house during bankruptcy depends on the type of bankruptcy you are filing for. Chapter 7 and Chapter 13 bankruptcy each have unique requirements and impact your assets, such as a house you own, differently.
Chapter 7 Bankruptcy
To qualify for Chapter 7 bankruptcy in Colorado, you must meet the income test set by the federal government. You can only qualify if your family’s gross annual income is lower than the median income for your household size in Colorado. The median income changes each year, so be sure to check the requirements based on the current year.
Chapter 7 bankruptcy requires you to sell non-exempt assets to discharge your debts. If you own your home, you may be at risk of having to sell it. This depends on the amount of equity you have in the property, whether you are current on your mortgage payments, and whether you qualify for a homestead exemption that would allow you to keep your house.
Under Colorado law, you can protect up to $250,000 of equity in your primary residence, or up to $350,000 if you, your spouse, or a dependent resident is 60 or older. Equity above this limit could be considered non-exempt. When you file for Chapter 7 bankruptcy, you may be required to sell the home and use the non-exempt proceeds to pay unsecured debts.
Chapter 13 Bankruptcy
Someone whose income exceeds the limits for Chapter 7 bankruptcy might instead consider Chapter 13. This type of bankruptcy involves creating a payment plan to pay off some of your debts over the next three to five years. One important distinction is that with Chapter 13 bankruptcy, you can keep valuable property, such as a house or a car, that might otherwise be at risk in Chapter 7 bankruptcy.
As long as you adhere to your Chapter 13 repayment plan and property liquidation requirements, you will receive a discharge at the end of the three-to-five-year period, which releases you from most debts. However, Chapter 13 does not allow you to discharge mortgages.
Even if you qualify for Chapter 7 bankruptcy, you may choose Chapter 13 if you do not want to be at risk of losing your home.
Can You Sell Your House During Bankruptcy in Colorado?
If you are in the middle of bankruptcy in Colorado and are considering selling your home, you may wonder if this is even feasible under the terms of your bankruptcy. You generally need approval from the court and the bankruptcy trustee before you can proceed with any major transactions during bankruptcy, so speaking with the relevant party first may be a wise idea.
Selling During Chapter 7 Bankruptcy
Chapter 7 bankruptcy has applicable equity exemptions depending on your age. In some cases, it may make sense to sell your home and put the exempted equity in a separate account, then use those funds to purchase a new property, pay for rent somewhere else, or even pay for normal living expenses. However, it is generally wiser to postpone the sale of your house until after the Chapter 7 bankruptcy is discharged for a smoother selling process. Complications can arise during this process, such as:
- Disputes over the valuation of the house and how that translates to equity and your qualification for exemptions
- Needing to work with a real estate agent appointed by the bankruptcy trustee, which could limit your options
- Potential delays in the legal and sale process due to needing to obtain court and trustee approval, which can deter potential buyers
Selling During Chapter 13 Bankruptcy
It’s common for those considering bankruptcy to choose Chapter 13 over Chapter 7 if the equity in their home exceeds the homestead exemption limits for Chapter 7. These individuals may also consider selling their house during Chapter 13 bankruptcy to gain access to that equity for other financial purposes.
Chapter 13 bankruptcy is also an option for those who are facing foreclosure. Filing for bankruptcy can pause these proceedings, allowing the homeowner additional time to find a buyer and sell the home for a better price. Then, they can use the proceeds from the home sale to pay off their balance with the mortgage lender and avoid foreclosure.
Potential Reasons You May Consider Selling Your House During Bankruptcy
Selling your house during bankruptcy in Colorado does not always make sense. In some cases, you may wish to protect your ability to stay in your home when you file for bankruptcy, leading you to choose Chapter 13 over Chapter 7 bankruptcy. Selling your home during bankruptcy could cause you to sacrifice some of the equity in the property, depending on the terms of your specific bankruptcy case.
However, in other cases, selling your home during this time may be wise or even necessary. These are a few potential reasons you may consider selling a house during bankruptcy in Colorado:
- Avoid foreclosure: Filing for bankruptcy means you are likely in financial distress, and you may not be able to afford mortgage payments, either. This can put your home at risk of foreclosure. Selling a house to avoid foreclosure often makes sense, as it can allow you to pay off your balance with the lender and stop them from seizing the home and evicting you.
- Potentially receive discharge early: At the end of the three-to-five-year period for Chapter 13 bankruptcy, you can receive a discharge of some or even most of your debts. Selling your house and using the proceeds to pay off your debt could allow you to end this period early, letting you move forward from the bankruptcy.
- Move to a new area: Sometimes, you have no choice but to sell your home and move to a different one, such as if you are relocating for a job or for family reasons. If you need to sell your home for one of these purposes, speak with your bankruptcy trustee about your options.
How To Sell Your House During Bankruptcy
If you are thinking of selling your house during bankruptcy, you will need to approach this process thoughtfully to avoid violating the terms of your bankruptcy or potentially losing equity in your home. Follow these steps and speak with a bankruptcy attorney for more personalized legal guidance.
- Gain permission from the bankruptcy court: Your first step should always be to speak with the bankruptcy court to understand whether you are permitted to sell. You will likely need a plan that explains why you want to sell the home and how you will use the proceeds. The court may not approve the sale if it believes you are selling short on the value of the home. You may also need to work with a real estate agent approved by the court.
- Notify creditors about the sale: You will need to notify all creditors involved in your bankruptcy process before you can finalize the sale of your home. Creditors may object to the sale itself or the terms of the sale. If you have a bankruptcy attorney, they can help you navigate this process.
- File a motion to sell estate property: After receiving permission from the bankruptcy court, the trustee, and the creditors, you can file a motion to sell with the court. Here, you will disclose the details of the sale, including the appraisal value and sale price.
- Understand how the sale price affects your bankruptcy process: Selling your home for less than the fair market value may be considered a “fraudulent transfer” and may be prohibited under the terms of your bankruptcy. Make sure you understand what sale price would be acceptable.
Consider Selling to a Cash Buyer in Colorado
If you are looking for a fast way to sell your house before or during bankruptcy, Joe Homebuyer Colorado can help. We buy homes in all conditions and statuses, including from owners who are in the midst of bankruptcy.
Selling to our cash buyers offers a range of benefits:
- A fast closing, often within seven days of you accepting our offer
- Certainty of sale, as our purchases rarely fall through, and we do not shy away from bankruptcy cases, liens, and other complexities
- Simplicity, with fewer parties and less paperwork than a traditional sale. This may make it more likely for the court to approve the sale quickly.
We will work with you to determine how you can sell your home to us during bankruptcy in Colorado. For more information or to request your cash offer, call us today at 970-680-7773.
