Once a debtor files for bankruptcy, his or her home and other possessions become part of their bankruptcy estate. While creditors cannot automatically foreclose on the property because of bankruptcy protections, the debtor is likewise not allowed to sell a house without first obtaining permission from the court.
During a Chapter 7 bankruptcy, it can be difficult to sell a home. The debtor must first convince the court that the sale will not prejudice ay creditor. A trustee must also obtain the court’s approval to sell a home in order to generate cash for creditors.
However, in a Chapter 13 bankruptcy, a debtor is allowed to sell his or her home as long as the sale does not cause financial harm to the mortgage lender.
To sell a home while in bankruptcy, the debtor must first file a Motion to Sell Real Property with the court. This motion must include information such as the house’s selling price and the names of creditors who hold liens on the property. The Motion must also include a detailed report on how the debtor will use the proceeds of the sale.
This information is also required of the bankruptcy trustee when the trustee believes selling the debtor’s home is the best method to satisfy creditor demands. The Trustee must provide important information regarding the home and the bankruptcy, as well as a plan detailing the distribution of the proceeds of the sale. Additionally, the trustee must convince the court the sale of the home will not be overly detrimental to the debtor.
In Florida, part or all of a home’s value may be exempt. This means a trustee may not be able to sell a debtor’s home. However, investment properties do not enjoy the same exemptions as an owner-occupied home. A debtor who files a Chapter 7 bankruptcy typically cannot prevent investment homes from being included in the bankruptcy. An investment home is a property that is not a person’s primary residence, and was purchased or used to generate income, profit from appreciation, or take advantage of tax benefits.
While bankruptcy is a federal law, the property that is exempt from bankruptcy is defined by each state. Florida has many state specific exemptions, such as the Homestead Exemption. This exemption states a debtor can exempt an unlimited amount of value in a home, or other covered property, as long as the property is not larger than half an acre in a municipality or 160 acres elsewhere.
For more information on selling your home during bankruptcy, or how to exempt your property in Jacksonville, Florida, contact The Law Office of David M. Goldman, PLLC at (904) 685-1200.