Sell Home or File Bankruptcy?
Selling your home before filing bankruptcy may or may not be a wise decision depending on a few major factors:
Do You Have a Significant Amount of Equity in Your Home?
If you have a significant amount of equity in your home it may be tempting to sell of your home before filing bankruptcy; however, that cashed out equity may become part of the bankruptcy estate. If you sell your home and spend the equity before filing for bankruptcy, it could cause trouble for your bankruptcy case depending on how recently the money was spent. For example, selling your home and spending the proceeds two weeks before filing bankruptcy could get your bankruptcy case dismissed – at best, or have you facing bankruptcy fraud charges at worse.
If you do not have any equity in your home or if you are upside down on your mortgage, selling your home before filing bankruptcy could leave you with a deficiency balance. If the mortgage company does not forgive the deficiency balance they could sue you for the money. But on the other hand, if the mortgage company does forgive the deficiency balance you could still end up paying taxes on the forgiven amount. The IRS does not tax debts forgiven in bankruptcy, so in the case of an upside down mortgage it may be better to just file bankruptcy instead of trying to sell it beforehand.
Would You Prefer to Remain in Your Home?
Many people think about selling their home before filing bankruptcy because they feel like they don’t have any choice. Bankruptcy can help a debtor remain in their home while discharging other unsecured debts such as credit cards. If you are thinking about selling your home before bankruptcy because you don’t think you can save it, speak with a bankruptcy attorney first about how bankruptcy can keep you in your home.
Do You Have Another Place to Live?
It is very important that debtors considering selling their home before bankruptcy make sure that they have an alternative place to go. Remember, if you sell your home with little or no equity in it, you will not make a profit off the sale which can leave you financially unable to secure another place to live. If you are unable to raise the money necessary to rent another home, you may want to consider filing bankruptcy before selling the home or surrendering it to the mortgage lender.
Are you considering bankruptcy but not quite sure, feel free to give us a call or fill out our contact form to set up a free consultation. We are always here to help.