Choosing to file for bankruptcy is the first step in restoring your financial health, but it’s far from the only decision you’ll need to make.  Homeowners who want to sell their home need to analyze the right way and time to do so. This important decision will impact your legal options, your ability to protect your assets, and the course of your financial recovery. Below, we’ll provide guidance to help you through this complex situation.

The first thing you need to know is what type of bankruptcy you’re going to pursue. The two options are Chapter 7 and Chapter 13. Which one you choose will make a big difference in how you should approach your home sale.

• Chapter 7 Bankruptcy: Known as a “liquidation bankruptcy,” people who file under Chapter 7 may result in an order to sell their non-exempt assets to repay their creditors. Though you may fear being forced to sell your home, many states offer homestead exemptions that protect a certain amount of home equity. This allows you to keep your property as long as its value falls within the exemption limit.
• Chapter 13 Bankruptcy: This type of bankruptcy involves the court creating a repayment plan for your debts over three to five years. It often involves changing the terms of loans or debt through reduced interest rates or other means. When filing under Chapter 13, debtors are generally able to keep their homes, but they must demonstrate the ability to stay current on their mortgage.

Depending on the specifics of your situation, selling your home before a bankruptcy filing may make sense, especially if you’re struggling to pay your mortgage or need to reduce your liabilities. The benefits of doing so include:

• Asset Liquidation: You can use the proceeds of the sale to help settle debts or to fund your transition to more affordable living.
• Avoiding Complications: Selling your home will simplify your financial situation, potentially streamlining the bankruptcy process.

If you’re considering a home sale, it’s a good idea to speak with an experienced bankruptcy attorney before either the listing or beginning the bankruptcy process: Selling a home too close to your filing could trigger scrutiny under bankruptcy laws. That’s because all transactions within a specific period before filing are reviewed for fraud or asset concealment. If the court believes you are trying to hide assets or avoid paying creditors, your bankruptcy application could be denied.

If you file for bankruptcy before selling your home, the bankruptcy court will supervise the process.  The benefits of selling after bankruptcy include:

• Debt Discharge: Your bankruptcy filing will likely reduce or eliminate your unsecured debts. This will allow you to sell your home without excessive creditor claims against the proceeds.
• Homestead Exemption: Your bankruptcy filing may preserve the equity you’ve built up in your home if it falls within the exemption. This will protect it from being used to satisfy creditors.

Every homeowner’s situation is unique, and the best approach depends on your state laws, financial circumstances, and goals. Consulting a bankruptcy attorney will make sure you’re making informed decisions and avoiding legal pitfalls.