Are bills piling up? Getting daily phone calls from creditors and debt collectors? Trying to juggle mounting bills and living expenses can be stressful for anyone. Thankfully, there are solutions out there to hit a reset button on your finances. However, some of those solutions look different depending on what kind of situation you are dealing with.
For some people figuring out payment plans is an option; for others, it may be selling their property to a cash home buyer. Still, it’s not uncommon for people to choose to file for bankruptcy as a solution to better their financial position.
When it comes to knowing what bankruptcy means legally, the information can be hard to understand. You may have questions like: what is bankruptcy? What is Chapter 7 vs. Chapter 13 bankruptcy, and can you sell your house after filing Chapter 7?
Well, you came to the right place; this article will cover all these common bankruptcy questions and more. Continue reading to find out more
How To Sell Your House After Filing Chapter 7
What is Bankruptcy?
Bankruptcy is a legal proceeding that gives individuals or business freedom from their debts while providing their creditors an opportunity for repayment. Bankruptcy is handled in federal court and has various types of bankruptcy options commonly referred to by their Chapter in the U.S. bankruptcy code.
Something to note is that bankruptcy should be considered a last resort. For some people, it’s a way out if debts have been unmanageable or they’re facing foreclosure on their home. Just remember it does have consequences that are worth considering before making a decision. One of them is damage to your credit because bankruptcy can remain on your credit for 7 to 10 years, depending on which chapter of bankruptcy you file.
As another resort, you might be able to negotiate with your creditors and work out a payment plan or another satisfactory arrangement. It doesn’t hurt to ask the creditors if they would accept reduced payments over a longer time; that way, they don’t have to wait for a bankruptcy settlement and risk getting nothing.
In a home loan situation, call your mortgage company to see what options they may have available to you. Some lenders offer repayment plans ( smaller payments over a longer period), forbearance (postponing payments for a certain period), or loan modification (which may, for example, lower the interest rate on the loan). Also, you can consider selling your home to a home investor that could purchase your property quickly, allowing you to pay off some or all of your mortgage.
Even if you owe taxes, the Internal Revenue Service is often willing to negotiate. If you’re eligible, the IRS may agree to take a lower amount or offer payment plans.
If you do still decide to file personal bankruptcy, you will likely file either Chapter 7 or Chapter 13 bankruptcy, and the first step to do that should be to consult with an attorney.
Chapter 7 vs. Chapter 13 Bankruptcy
Now that you have a general idea of what bankruptcy is and how critical filing bankruptcy can be to your credit. Let’s look at the difference between Chapter 7 vs. Chapter 13 bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is one type of personal bankruptcy you can file. This particular Chapter liquidates your assets to pay your creditors. Your assets are grouped into two categories: exempt and non-exempt. Examples of exempt assets (items you get to keep) would include part of the equity in your home and automobile, personal items, clothing, pensions, social security, public benefits, and tools needed for your employment.
That being said, one of the cons of Chapter 7 bankruptcy is the possibility of losing your house because you can only keep part of the equity. The good news is- if you’re current on your mortgage and have little to no equity in the property, you’re usually safe. Typically, the trustee wouldn’t be able to make enough money off the sale of your home to pay the creditors, so there is no incentive to sell your home.
The “part” or amount of the equity you keep can be found in the Wisconsin Homestead Exemption statutes. Currently, the Wisconsin Homestead Exemption allows you to exempt $75,000 in equity and $150,000 for married couples filing jointly in the property you occupy or intend to occupy. So if a person owns a $175,000 homestead and has a $100,000 mortgage, then $75,000 of equity in the homestead is fully exempt.
Once assets are categorized, the remaining non-exempt assets will be sold by a trustee appointed by the Wisconsin bankruptcy court, and the proceeds will be distributed to the creditors. Examples of non-exempt assets might include property (other than primary residence), second car or truck, boats, recreational vehicles, collectibles, and other valuable items such as bank and investment accounts.
Once you reach the end of the process, most of the debt will be discharged, and you will no longer be obligated to repay the creditors. However, certain debts like child support, taxes, and student loans are not settled and will still need to be repaid.
Something to note, Chapter 7 bankruptcy stays on your credit history for 10 years from the filing date.
Generally, Chapter 7 is chosen by individuals with few assets and lower incomes. Also, to be eligible for Chapter 7, you are subject to a means test- which is a method to determine if someone qualifies for financial assistance. Chapter 7 bankruptcy is limited to the bankruptcy fillers that are experiencing the greatest hardship. People who don’t pass the Chapter 7 means test will be limited to filing for Chapter 13 bankruptcy, which establishes a repayment plan.
Chapter 13 Bankruptcy
Chapter 13 is a bankruptcy proceeding in which a person in debt takes on a reorganization of their finances, which is supervised and approved by the court. Individuals, married couples, self-employed, or running an unincorporated business are eligible to file Chapter 13 bankruptcy.
The financial reorganization under Chapter 13 is also known as the “wage earner’s plan” and involves the debtor submitting and following through with an agreed-upon plan to pay outstanding debts within three to five years.
However, the repayment plan must provide a significant payback to creditors- at least equal to what they would receive with other forms of bankruptcy. Which means all your disposable income is devoted to paying outstanding debts.
Chapter 13 bankruptcy requires a compiled list of creditors owed with amounts outstanding, a list of any property owned, info about income amounts and sources, and detailed information about monthly expenses.
Once that information is gathered, the debt is consolidated into one monthly amount, and the debtor then pays an agreed-upon amount monthly to an impartial appointed bankruptcy trustee. The trustee will then distribute the money to the creditors. As part of Chapter 13, protection debtors have no direct contact with creditors.
For people to be eligible for Chapter 13, their debts must be below certain limits: $419,275 for unsecured debt and $1,257,850 for secured debt (as of February 2019, increases are in three-year increments). To file, you must also complete credit counseling to be considered eligible for Chapter 13.
If you file Chapter 13 bankruptcy, once it’s initiated, any property foreclosure proceedings are ceased.
Furthermore, Chapter 13 is a good option if you exceeded the allowable equity amount for Wisconsin Homestead exemption since Chapter 13 allows you to keep your home.
The major drawback of filing Chapter 13 is that paying past debts on top of current obligations can be a stressful undertaking. Just like Chapter 7 bankruptcy with Chapter 13, you are still obligated to pay taxes, alimony, child support, and student loans. Sadly, research shows that only one-third of all filers complete their repayment obligations and see their debt terminated.
Though debts are paid back within three to five years, Chapter 13 bankruptcy will stay on your credit report for seven years from the date of filing.
The Bottom Line About Bankruptcy
Filing bankruptcy is a big deal, and choosing between Chapter 7 and Chapter 13 bankruptcy is an important decision with significant financial effects. When making a choice this big, seek advice from a Wisconsin bankruptcy attorney; that way, you have some guidance on determining the best course of action for you and your family.
Process of Selling a House in Chapter 7 Bankruptcy
When filing for Chapter 7 bankruptcy, your home, and other possessions become part of the bankruptcy case. While creditors can’t foreclose on your home because it is shielded by bankruptcy protection, you can’t sell your property without specific permission from the bankruptcy court. But, keep in mind the trustee can also ask for permission to sell your house to pay off your debts too.
Should you want to sell your house, you will need to submit a motion to sell the property with the Wisconsin bankruptcy court. The motion must include the selling price and names of the creditors with liens on the property. You will also need to provide the court with detailed information about what you plan to do with the proceeds of the sale. A bankruptcy attorney will be able to help you with filing this motion and legal details.
A trustee can also submit this information to the court and petition the sale of your home. The trustee must convince the court that selling the house won’t be detrimental to the bankruptcy petitioner (you). But under the Wisconsin Homestead Exemption, part of your home’s value may be protected under that exemption, which can minimize the possibility of a trustee-requested sale.
Tip: If you plan to sell your house after filing Chapter 7 or Chapter 13 bankruptcy, just remember that you will need to reestablish your credit before purchasing another home.
Realtor vs. For-Sale-By-Owner
Once you get clearance from the court to sell your house after filing Chapter 7, you will need to decide how you plan to list the property. Typically people look at hiring a real estate agent or selling by owner.
Both options will likely involve doing home renovations or repairs to attract buyers and get a clean home inspection. Traditional buyers usually request a home inspection before closing, and banks won’t finance a loan for a house that isn’t in good condition. The only problem with that is doing renovations can be challenging during this time because finances are probably tight while going through bankruptcy.
Also, something else to keep in mind when hiring a real estate agent or selling by owner is real estate fees that will reduce the amount you will receive upon the sale of your home. If you were to hire an agent, their realtor fees cost anywhere from 5-6%, and if you sell by owner, the buyer may use an agent to purchase your home and ask you to pay the agent fees.
Whichever way you go about selling your home, there will also be closing costs involved too.
Details to keep in mind if you’re hoping to make some money from the sale of your Wisconsin home.
Another Way To Sell Your House After Filing Chapter 7
Another way to sell your house after filing Chapter 7 is by working with a local home buyer like Cream City Home Buyers. Cream City Home Buyers purchase houses in as-is condition, eliminating the cost of home renovations. And since you’re working directly with Cream City Home Buyers to buy your property, there are no agent fees, and they even help pay closing costs, saving you thousands of dollars.
Furthermore, they are cash buyers, meaning they don’t have to wait on bank financing and can close on your house in as little as 7 days if you’re looking to sell quickly. Or if you need a little bit more time, they can work with you on that too.
Selling to Cream City Home Buyers takes the stress and uncertainty out of the selling process, which is helpful while going through bankruptcy.
→ For more information about how selling to Cream City Home Buyers works, click here.
Ultimately, if you haven’t filed for bankruptcy yet, talk to an attorney before you do; there may be other solutions out there for you. One of them could be selling your house quickly to a home buyer to get you some cash in hand to pay back any bills or stop the foreclosure process. That way, you can prevent the years of harmful effects bankruptcy would have on your credit.
If you intend to file bankruptcy and plan to sell your home before, during, or after filing Chapter 7 or Chapter 13, consult with a bankruptcy attorney. A knowledgeable attorney will go over any requirements that Wisconsin has regarding reinvestment rules and any conditions or restrictions surrounding real estate purchases following a Chapter 7 or Chapter 13 filing.
It’s important to get this information before selling your home and ideally before deciding which type of bankruptcy you should file.
Hopefully, whichever path you choose provides a brighter financial future for you and your family.