How Does the Bankruptcy Trustee Sell My Home?

A Chapter 7 trustee sells a home by hiring a real estate agent and listing the house for sale. Below you'll learn when the Chapter 7 trustee appointed to your case will sell your home in bankruptcy, how long the trustee has to sell your home, and whether a real estate sale will delay your bankruptcy case.

Chapter 7 Bankruptcy Home Sale Procedures

Under most circumstances, the bankruptcy trustee will take the same steps to sell your house as you would. The trustee will list the property with a real estate broker and negotiate a price with a buyer. However, the trustee must also do the following:

• get court approval to employ the real estate broker
• obtain a court order authorizing the sale after finding a buyer, and
• notify creditors and interested parties of the opportunity to object to the home sale.

Why Does the Trustee Want to Sell My House?

The trustee will want to sell your house if you have more equity than state law says you can keep in Chapter 7 bankruptcy. However, that's not the only factor the trustee will consider. A home sale won't occur unless the available equity will cover all the costs the trustee must pay.

Payments That Must Be Made After a Bankruptcy House Sale

Before a Chapter 7 trustee sale, the trustee will calculate whether the proceeds will be sufficient to allow the trustee to do the following:

• pay sales costs and any outstanding mortgages
• give you any homestead or other exemption amount you're entitled to, and
• pay sales costs and the trustee's fee.

The trustee will use the remaining proceeds to repay unsecured creditors. If nothing would remain for creditors, the trustee won't be able to comply with legal requirements and receive payment for the effort. In such a case, a bankruptcy property sale won't occur.

What Debts Are Paid After a Bankruptcy Trustee Sale?

Bankruptcy law requires the trustee to pay your priority unsecured debts, such as outstanding taxes and support obligations. This rule benefits you because, in most cases, priority debts aren't discharged or eliminated in bankruptcy. You remain responsible for paying them after the case.

Once priority debts are fully paid, all remaining unsecured debts (anything other than a mortgage, car payment, or some other secured debt guaranteed by collateral or a lien) share the remaining funds on a pro-rata or percentage basis. The balances of these debts are discharged in Chapter 7, except student loans.

Will a Bankruptcy Sale of Real Estate Affect My Chapter 7?

The sale could delay how long it takes to close your bankruptcy case. You'll receive your bankruptcy discharge erasing qualifying debt after three to four months, assuming all proceeds normally. However, your bankruptcy case will remain open until the trustee sells your home.

How Long Does a Trustee Have to Sell a House?

How long it will take to close your bankruptcy depends on the real estate market and how long the trustee wants to keep the house listed. However, most bankruptcy courts frown on a trustee keeping a case open longer than a year.

Find out more about how long Chapter 7 will take to complete.

Dealing With Chapter 7 Lien Disputes When Selling Your Home

Removing all the liens from the property and selling it with a clear title can speed up the sale. A lien lets a lender take the house, sell it at auction, and pay off the mortgage if the purchaser fails to pay the loan.

To circumvent the liens, a trustee might get a court order allowing the liens to attach to the sale proceeds. This approach retains the lender's right to the funds, and if any disputes arise between the various lien holders regarding payment order or the amount, the issues can be sorted out by the court afterward without delaying the sale.

If there are no disputes, the trustee pays lien holders and any exemptions you claimed. The remainder is used by the trustee to pay the other creditors in your bankruptcy case.

Learn more about the Chapter 7 bankruptcy process.