The Short Answer
Yes, but the answer depends entirely on which chapter of bankruptcy you're in. In Chapter 13, you can sell your home while the case is active — but you need court approval first, which typically takes about 30 days. In Chapter 7, selling during the case is extremely rare because the case only lasts 3 to 6 months; most people simply wait until after discharge to sell without needing any court permission.
This is a common asked question, and a great one! With the downturn of the housing market, many people understandably want to know if they have the right to sell their property when they are in a bankruptcy.
While in a Chapter 13 bankruptcy, you can indeed sell your home while you are in an active bankruptcy, but, you must obtain permission from the court to do so. When you decide you want to sell your property, you will need to contact a realtor to put it on the market for you. At that point, you need to be upfront with them and let them know you are in an active Chapter 13 bankruptcy. When a buyer is found, the realtor will draw up a contract to purchase the home. You will then need to forward that contract to your bankruptcy attorney along with a payoff for your existing mortgage(s). At that point, a Motion to Sell Real Property will be filed with the court. It takes approximately 30 days to obtain permission from the court. If there are any excess proceeds from the sale, they will usually be applied to your Chapter 13 bankruptcy. You will rarely get a situation where the debtor gets to keep the proceeds from the sale of the home.
In a Chapter 7 bankruptcy, it is extremely rare to sell the property while in bankruptcy. When you file bankruptcy, you will either surrender (give up) your home or you will retain the property; and since Chapter 7 bankruptcies only last 3 to 6 months, there is usually no point in selling it until after you are out of the bankruptcy. Once you are out of bankruptcy, you would not need permission from the court to make the sale.
All districts and divisions have different rules, so if you are thinking of selling your home, you will need to contact your bankruptcy attorney first and discuss it with them.
Key Takeaways
- In Chapter 13, you must file a Motion to Sell Real Property and get court approval before closing — skipping this step can derail your entire case.
- Any proceeds from a home sale during an active Chapter 13 will almost always go toward your bankruptcy plan, not into your pocket.
- You need to tell your realtor upfront that you are in an active bankruptcy so the purchase contract can be handled correctly from the start.
- In Chapter 7, selling your home mid-case is rarely necessary or practical since the bankruptcy is typically resolved within 3 to 6 months.
- Once your Chapter 7 discharge is complete, you can sell your home without any court involvement.
- Rules vary by district and division in North Carolina, so always contact your bankruptcy attorney before listing your home or signing any contract.
Attorney Insight
The mistake I see most often is a client who lists their home with a realtor — sometimes even signs a purchase contract — without telling their attorney first. In Chapter 13, selling real property without prior court approval through a Motion to Sell is an unauthorized use of estate property, and it can put your entire plan in jeopardy. The trustees here in the Middle and Western Districts of NC take this seriously. Get your attorney involved before you call the realtor, not after you already have an offer on the table.
