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Can I Sell My House During Bankruptcy

Can I Sell My Dallas House During Bankruptcy

Bankruptcy is difficult and leaves many Dallas residents wondering, “Can I sell my Dallas house during bankruptcy?”

This article will walk you through some of the options that you may have.

My name is Scott, and I’m a real estate investor with over 10 years of experience in the Dallas market.

The first question to address, is whether you are in Chapter 7 (“Liquidation”) or Chapter 13 (“Reorganization”) bankruptcy.

Title 11 of the United States Code is referred to as the “Bankruptcy Code” which outlines the federal laws governing bankruptcy.

The “chapters” (e.g. Chapter 7 and Chapter 11) refer to the specific sections within the US Code used by individuals (or businesses) to file for bankruptcy.

Chapter 7 (Liquidation)

When an individual can’t pay his/her bills, Chapter 7 helps provide a “fresh start.”

Your attorney prepares a bankruptcy petition and files it with the Dallas bankruptcy court.

The court appoints a trustee once proceedings begin.

The court will require the trustee to organize all of your possessions into two categories: exempt assets and nonexempt assets.

You may choose whether to use the federal or state list of exemptions.

Texas’s exemption list is very generous.

Notably, Chapter 41 of the Texas Property Code defines your homestead as exempt property (no matter how expensive).

The trustee will be in charge of selling all of your nonexempt assets (the “liquidation”)

The court uses the proceeds to pay off your existing creditors.

Once the trustee sells all the nonexempt assets, then the court offers you a “fresh start“.

In other words, you have no more debt (even if your assets didn’t fully pay off the creditors).

Homestead Exemption

Texas provides an unlimited deduction for both a debtor’s homestead and one car.

By contrast, the federal exemption list caps your homestead at $189,050 (as of 2022) – which is why most Texans opt for the state exemptions.

There are acreage limits for the Texas exemption – 10 acres in an urban area, or 100 acres (or 200 for a family) in a rural area.

However, if the property is sold, the debtor may continue to apply the homestead exemption to the sale proceeds for up to six months.

Chapter 13 (Reorganization)

Under a chapter 13 bankruptcy, a debtor offers to pay off debts with its future income by establishing a 3-5 year repayment plan.

You can use Chapter 13 to (1) prevent home foreclosure, (2) stop repossession of a car, (3) keep valuable non-exempt property, and more.

After the term of your plan, the court will discharge the debt if you adhere to the payment plan.

To file Chapter 13 bankruptcy you must have a “regular source of income”.

Additionally, you have to have some amount of disposable income to apply towards your Chapter 13 payment plan.

Comparing Chapter 7 and Chapter 13

A chapter 13 bankruptcy allows debtors to make up their overdue payments over time and to reinstate the original agreement. Where a debtor has valuable nonexempt property and wants to keep it, a chapter 13 may be a better option.

However, for the vast majority of individuals who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.

For those in Chapter 13 bankruptcy, selling your home becomes more complex.

You must obtain permission from the court and demonstrate a benefit to your creditors.

The process involves filing a motion with the court and providing a compelling reason for the sale.

This might include demonstrating that the sale will allow you to pay off your debt more efficiently or that it’s necessary due to a change in your circumstances.

It’s important to note that selling your home during bankruptcy can have implications for your ability to purchase a new home in the future.

Bankruptcy can affect your credit score and may be an impediment to qualifying for a conventional mortgage for several years.

However, options like mortgages insured by the FHA may be available sooner, provided you can demonstrate re-established good credit.

Conclusion: How Can I Sell my House During Bankruptcy

One should carefully consider whether to declare bankruptcy.

It requires careful consideration of your financial situation, long-term goals, and the current real estate market.

Additionally, the timing of the sale can be critical.

If you sell before filing for bankruptcy, you might have different protections than if you sold after the bankruptcy is filed.

Ultimately, the guidance of a knowledgeable bankruptcy attorney is invaluable in making an informed decision.

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