When you get behind on mortgage payments and bills, it can be overwhelming, making you think the only way out is to file for bankruptcy. Filing Chapter 7 bankruptcy in Virginia or any chapter of bankruptcy is a big deal and can impact your life. Although it may benefit you in the short term, in the long run, you’ll be feeling the negative effects for several years.
So instead of dealing with the aftermath, another option would be to sell your biggest asset- your house. That may help you avoid bankruptcy or put you in a better financial position after filing Chapter 7. But, before you get too excited about this possibility of extra income, you’ll want to find out if selling a house in Chapter 7 bankruptcy is even possible. Below we’ll cover all you need to know about Chapter 7 bankruptcy in Virginia if there is a way to get out of bankruptcy, and how to go about selling your house. So let’s get started!
What is Chapter 7 Bankruptcy?
A good place to start is to figure out what Chapter 7 bankruptcy is exactly. Well, bankruptcy in itself is a legal proceeding in which an individual who cannot pay their debts/bills can get a fresh start financially. The federal government provides the right to file for bankruptcy, and all cases are handled in federal court. When you file for Chapter 7 bankruptcy, it immediately stops all debt collections and creditors from seeking payments until all debts are sorted out according to the law.
So what is Chapter 7 bankruptcy then? Chapter 7 bankruptcy is known as a “straight” bankruptcy or “liquidation.” It requires the debtor to give up property that exceeds certain limits called “exemptions,” so your house may be sold to pay creditors.
The basic idea with Chapter 7 bankruptcy is to wipe out your debts in exchange for giving up assets, except for “exempt” property, which the law allows you to keep. Typically all your property will be exempt, but the property that is not will be sold, and the proceeds will be distributed to creditors. However, if you’re hoping to keep property like a house but are behind on mortgage payments, Chapter 7 bankruptcy does not waive mortgage holders’ right to take your property to cover the debt.
What’s the Difference Between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy?
The biggest difference between the two chapters of bankruptcy is chapter 7 is the liquidation of nonexempt property, which uses the profits to pay creditors. The process usually takes three to four months.
Chapter 13 is the reorganization of debt which includes payment plans that typically take three to five years to complete. Filing Chapter 13 allows debtors can keep their property and catch up on missed mortgage or car payments and other debt payments.
How To Get Out of Chapter 7 Bankruptcy?
Hopefully, you are finding this article before you file Chapter 7 bankruptcy because once you file for Chapter 7 bankruptcy, you don’t have the right to dismiss it voluntarily, in other words, get out of it. Unlike other court cases, when you file Chapter 7 bankruptcy, you must be prepared to complete the process because you can’t back out. Generally, you can only dismiss your Chapter 7 bankruptcy case if you have a good reason. The “good reason” has to be very compelling, and you’ll have to show that you can pay your creditors outside of bankruptcy.
For many people avoiding Chapter 7 bankruptcy is possible when selling their biggest asset, their home.
Can You Sell a House in Chapter 7 Bankruptcy?
Yes, but timing will be essential, and you’ll need to make sure you’ll be able to keep the proceeds. Ideally, it would be best to sell before filing for Chapter 7 bankruptcy so you can avoid bankruptcy altogether. But can you sell a house before you pay off the mortgage? Yes, you can!
However, if you’ve already filed for Chapter 7 bankruptcy, waiting until bankruptcy closes would be a good idea, and here’s why. Chapter 7 bankruptcy is meant to help you start fresh so some of your assets will be protected, like some of the equity in your home, but only a certain amount.
This is when getting legal advice would be helpful, to explain the Virginia homestead exemptions available to you and to advise you when the best time would be to sell your home while filing for bankruptcy.
Steps To Sell a House in Chapter 7
If you haven’t filed for bankruptcy yet, you’ll want to get a move on selling your home to avoid bankruptcy altogether. If you’ve already filed for bankruptcy but are nearing the closing, having a plan in place to sell would be helpful too. Below are the steps to sell a house in Chapter 7 bankruptcy.
Step 1: Confirm You Can Sell the Property
If you’ve already filed chapter 7 bankruptcy, you’ll need to speak to your bankruptcy lawyer and to your court-appointed trustee to confirm the court doesn’t need to approve the home sale first, and you would be able to keep all the profits.
If you haven’t already filed for bankruptcy, you can sell your home at any time and keep the proceeds and use them to pay off debt. If your mortgage and housing expenses make up a big part of your monthly burn, selling your house should help reduce that monthly expense.
Step 2: Decide on a Selling Strategy
After you get the green light to sell your home after filing Chapter 7, you will need to figure out some ways you can sell your house. Make sure to keep the cost of selling real estate in mind. When deciding how to sell your house, generally, people look at hiring a local real estate agent or selling for sale by the owner (FSBO).
Both selling strategies will include doing home repairs or improvements to attract potential buyers and to get a clean home inspection. But don’t forget, besides the money it will take to do these renovations if you plan to use an agent or sell FSBO, there are listing costs to expect too. Typically commissions cost 5-6% of the selling price when working with real estate agents, and when selling by owner, you may owe 2.5-3% in commissions.
Repair costs and commissions can eat into your profits which is something to consider since money is tight right now, and you could really use the cash.
Step 3: Consider Other Selling Strategies
Have you ever considered selling to a “We Buy Houses in Virginia” company? They are as-is home buyers that purchase properties that need repairs or renovations and don’t charge hefty realtor commissions. They’re also cash investors, which means they can make you a cash offer within 24-hours and close in as little as 7-days.
If the main reason you’re filing bankruptcy is to avoid foreclosure, selling your house as-is to a homebuyer would be perfect for you to avoid foreclosure, as well as costly repairs and commission fees.
If you’re looking for companies that buy houses in Norfolk and Virginia Beach, look no further than Avante Home Buyers. Avante Home Buyers is a local home buying company specializing in buying houses in “as-is” condition and has easy steps to sell a house fast for cash.
Ultimately if you haven’t filed for Chapter 7 bankruptcy, get legal advice before you do, there may be other alternatives out there for you. One solution could be selling your house fast to a local home buyer to get some cash in your pocket to pay outstanding debts or stop the foreclosure process. This solution could help you prevent years of harmful effects that filing Chapter 7 bankruptcy would have on your credit history.
If you plan to file for bankruptcy and sell your house before, during, or after filing Chapter 7, consult with a bankruptcy attorney. The attorney can go over any requirements that the state of Virginia has regarding restrictions or conditions that apply to real estate purchases following a Chapter 7 bankruptcy filing. Getting this information will be helpful before selling your home and wise before deciding if you should file Chapter 7 bankruptcy.
Hopefully, whichever path you take provides a brighter financial future for you and your family!