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Can you sell your house if you’re in bankruptcy?
Yes, but not on your own. Once you file, your house becomes part of the bankruptcy estate, and a sale needs the trustee’s or the court’s involvement. The good news: bankruptcy and a sale can work together. The automatic stay can pause a foreclosure long enough to sell, and the sale can pay off the mortgage and protect your exempt equity. Bankruptcy is one of the tools we cover on the facing foreclosure page.
We’re not bankruptcy attorneys, and this isn’t legal advice. Your attorney runs this. We work with them.
Chapter 7 vs. Chapter 13
| Chapter 7 | Chapter 13 | |
|---|---|---|
| What it is | Liquidation; trustee can sell nonexempt assets | Repayment plan over 3 to 5 years |
| Your house | Trustee may sell it if there’s nonexempt equity, or abandon it | You usually keep it and catch up on arrears |
| Selling | Often handled by the trustee | You can sell with court approval |
| Foreclosure | Stay is often short-lived | Plan can cure missed payments |
The automatic stay
Filing for bankruptcy triggers an automatic stay that stops most collection actions, including a foreclosure sale. It buys time. It doesn’t erase the mortgage. The lender can ask the court to lift the stay, especially if you’re not making post-filing payments. Use the time wisely.
The Minnesota homestead exemption
Minnesota lets you protect equity in your homestead up to a dollar cap set by statute and adjusted periodically. Some people use the federal exemptions instead, depending on what protects more. The exemption matters when you sell: exempt equity can often come back to you, while nonexempt equity may go to creditors through the trustee or plan. Your attorney figures out which exemptions apply.
How a sale works in Chapter 13
- You and your attorney decide to sell. Often because the plan payment is too high or you want to move.
- Purchase agreement. Signed subject to court approval.
- Motion to sell. Your attorney files it. The trustee and creditors can respond.
- Court order. Once approved, the title company can close.
- Proceeds. The mortgage and liens are paid, and the rest is handled per the plan and order.
How a sale works in Chapter 7
If there’s nonexempt equity, the trustee may sell the house and pay creditors, then pay you your exemption amount. If there’s little or no equity, the trustee may abandon the house, and you deal with the lender directly afterward. Talk to your attorney before you talk to any buyer.
When the house is underwater
If you owe more than the house is worth, a sale may not help creditors at all, and the trustee may not care about it. Your real options may be a short sale, a surrender, or a subject-to structure outside the bankruptcy. See underwater options.
How we work with bankruptcy attorneys
We put our offer in writing with a closing date that allows for court approval, share it with your attorney, and wait for the order before closing. A cash offer with no financing contingency is often easier for a court to approve because it’s certain. If listing would bring more for the estate, Ryan will say so.
What to do now
If you’ve already filed, call your attorney first, then call Ryan. If you’re thinking about filing to stop a foreclosure, talk to a bankruptcy attorney about whether selling first or filing first leaves you better off.