19 Jul Selling Your Home in Bankruptcy (Part One: Chapter 7)
If you’ve filed bankruptcyunder Chapter 7, you can usually still sell your home. But there is likely to be a delay before you can complete the sale, so you need to understand basic bankruptcy procedure.
Can your home be sold?
The answer is: It depends.
In fact, that’s the initial answer to most bankruptcy questions. So if you’re ever asked a bankruptcy question and want to sound like you know something about it, just answer, “well, it depends” while looking very serious. Stroke your chin a bit as you answer. Rest assured, “it depends” is the correct answer.
Now, let’s now take a look at what your answer depends on.First, some basics. When a bankruptcycase is filed, section 541 of the Bankruptcy Code (we’ll call it “the Code” from here on) provides that all the debtor’s legal and equitable interests become assets of the bankruptcy estate. This happens instantly upon filing. Put simply, your stuff isn’t yours anymore; it belongs to the bankruptcy estate.
However, under section 522 of the Code, you are allowed to keep, or “exempt”, ” certain assets. “Exemptions” are the items of property you get to keep safe from your creditors, up to a stated value (a certain amount of equity in your home, car, clothing, jewelry, and so on). The bankruptcy trustee can’t take the shirt off of your back. You are allowed to keep enough property for a fresh start.
How much home equity you are allowed to keep depends on where you file your bankruptcy case.In South Carolina, for example, each debtor is allowed $51,450 as a homestead exemptionshomestead exemption. (So in a joint case–husband and wife both filing–that amount doubles to $102,900). However, if you moved within two years before your bankruptcy filing, you may not be allowed to claim the exemptions in the state in which you file. This can get complicated, so you’ll need to discuss it with your attorney.
Section 522(l) provides that the bankruptcy trustee (the officer appointed by the court to administer the case) is allowed 30 days from the initial bankruptcy hearing to object to the exemptions you claim.This initial hearing is called the “First Meeting of Creditors” or usually just the “341 hearing” because the hearing is mandated by section 341 of the Code. For now, let’s just call it “the hearing” to keep things simple.
The hearing date is normally 30-45 days after the bankruptcy case is filed. While the Code allows the trustee 30 days from that date to object to your exemptions, trustees here in South Carolina almost always announce their decision at the hearing.
Provided the trustee has no objections to your exemptions, she will announce that she is abandoning “all scheduled assets.” Abandoning your property is a good thing, because that means the trustee no longer has any interest in it. At that point the abandoned assets are no longer property of the estate, and you are free to sell or transfer them. In other states, trustees simply close the hearing and do nothing.If that happens, then the abandonment occurs automatically 30 days after the hearing due to the trustee’s inaction, thanks to Code section 522(l).
As you can see Chapter 7 bankruptcy only delays the home sale for four to six weeks unless you have more equity in your home than you are allowed to keep, or unless the trustee decides to take more time to investigate the value of your property.
As noted above this article applies only to a Chapter 7 bankruptcy, also called “liquidation bankruptcy” or “straight bankruptcy.” In “Selling Your Home in Bankruptcy (Part Two: Chapter 13),” I’ll write about how selling a home would work in Chapter 13.
Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer representing debtors in Chapter 7 and Chapter 13 bankruptcy.
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