Even when you’re filing for bankruptcy you’ll still need a place to live. It’s pretty common for people to want to buy or sell their homes at some point during the bankruptcy process, especially during Chapter 13 bankruptcies which can last 3-5 years.

You generally would not try to sell a home or buy one during  Chapter 7. If you own a home and are filing Chapter 7 the trustee will generally sell your home to pay for your debts, unless your equity is low enough to be within federal bankruptcy exemptions. 

Selling

It is not at all uncommon for people to sell their homes during Chapter 13 bankruptcy. Indeed, many people do it to stall or prevent foreclosure, knowing that if the bankruptcy plan doesn’t pay off the house in full they’ll just end up with the same high house payment later.

To do it, you should talk to your attorney then list the house. Once you have a buyer lined up with an offer, you can go to the court and ask if the court is willing to let you sell the home for that amount. You must explain exactly what you’ll do with the proceeds from your home sale. In most cases, using it to pay off the existing mortgage is going to be approved. Note that the court will not approve a home sale if you’re not selling the house for a reasonable amount. 

Buying

Buying a home is generally impossible during an active Chapter 7 bankruptcy. Most banks just won’t approve the loan, long before the courts get involved.

It is possible during Chapter 13. If you can get approved for the loan, you’ll have to get authorization from the trustee and the judge to incur this new debt with a document that’s called an “Application for Outside Loan.” This tells the court what you’re buying, tells them where you got the money, what your payment is going to be, and how this is going to impact your budget. Note, this loan will not be discharged during bankruptcy.

Note you really will have to explain that money. A Chapter 13 bankruptcy is designed to soak up every last bit of disposable income, putting it towards your debts. There’s generally not a lot of room to save for a down payment. However gifts, sudden windfalls, court settlements and other sources of income do happen.

In a crowded real estate market this still may not be particularly feasible as the court approval process can add 4 to 6 weeks to a home sale. It may be hard to find the right home when investors are snapping them all up for cash, but it is still theoretically possible to complete a purchase. If you find a patient seller who is willing to work with you then you may get exactly what you need.

Got Questions?

Not sure how bankruptcy will impact your future plans? Reach out to our law office to schedule a free consultation. We’ll answer everything, from your concerns about housing to your concerns about your future credit score.

See also: 

How to Rebuild Your Credit Score After Bankruptcy

Protecting Your Goshen, NY Home in Bankruptcy

4 Things to Expect from a New York Foreclosure Settlement Conference