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Can I sell my home before filing for bankruptcy?

On Behalf of | Oct 20, 2024 | Bankruptcy |

When debt becomes overwhelming, it is natural to look for ways to reduce your financial burden. For homeowners, selling their property before filing for bankruptcy may seem logical. Is this strategy advisable, or are there other options available to you?

You can sell your properties, but proceed with caution

Selling your primary residence, or your properties in general, is a weighty financial decision. Coupling it with bankruptcy creates a complex legal situation. Consider these factors:

  • Timeline: Selling a house takes time. Factor in the listing, finding a buyer, inspections and closing. This process might delay your bankruptcy filing.
  • Capital gains: The court might consider the profit from the disposal of your home as capital gains, potentially leading to tax implications.
  • Look-back period: Sales of assets within two years of declaring bankruptcy can raise concerns. The court checks for fraudulent transfers.
  • Fair market value: Selling your home significantly below market value to a family member or friend right before bankruptcy may appear as an illegal attempt to conceal assets.

Filing for bankruptcy places your assets, including your home, into the bankruptcy estate. The trustee appointed to your case will determine which assets to sell to pay off creditors, specifically if you choose Chapter 7 bankruptcy.

Selling your home is only one of the many available legal solutions. In some cases, bankruptcy can help you keep your home while addressing other debts. Chapter 13 bankruptcy, for instance, lets you restructure your debts and potentially save your home from foreclosure.

Transparency is paramount if you opt to put your property on the market. The bankruptcy trustee will scrutinize recent property sales to ensure they were not attempts to hide assets or defraud creditors. Any suspicion of such actions could lead to serious legal consequences.

Confronting bankruptcy alone is risky

Selling your home may provide temporary financial relief during a challenging situation. Still, when planning to file for bankruptcy, it is critical to weigh the long-term implications of this action.

The most effective strategy often involves obtaining legal counsel from a New Jersey bankruptcy attorney. Do not risk your financial future without exploring all your options.