Allowing the Chapter 7 Trustee to Sell Your Home
Sometimes a debtor should allow the chapter 7 trustee to sell his or her house. The chapter 7 trustee can keep the mortgage company from immediately foreclosing. By stalling foreclosure the trustee is able to maximize the value of the house on the open market. When the house is sold the debtor walks away with as much as their exemption allows them to keep.
Selling your home at a time before you are mentally ready is a shocking blow and a debtor's first instinct is often to resist. There are many alternatives to sale which offer hope to debtors, the most frequently considered by debtors being: mortgage modification, chapter 13 bankruptcy, and chapter 11 bankruptcy. These methods of blocking foreclosure and catching up are viable options when the debtor is fairly close to having enough money to pay the mortgage payment. For example there are lots of folks that fall behind on mortgage payments because of a temporary drop in income. When the debtor regains their income at a later date they have the money to pay the mortgage payment again. Unfortunately by this time the mortgage is in arrears, sometime ten, twenty, or thirty thousand dollars behind. Most homeowners don't have nearly that much in savings. In comes the chapter 13 option wherein the debtor can stop foreclosure proceedings by agreeing to pay the regular mortgage payment again plus one sixtieth of the arrears. For a ten thousand dollar arrears balance that's only an additional $166.67 per month. A homeowner in that position can stomach the increase by simply cutting a few of the extras from their cable television programing package.
But what about the homeowner that never regains their lost income. Despite their effort seeking overtime or a second job the homeowner keeps coming up way short from being able to meet the regular mortgage payment. In that situation there is no way the homeowner is able to pay an extra amount to start catching up on their mortgage arrears. If the debtor's budget suffers from being distinctly far from having the money to pay the current mortgage payment the classic debt reorganization options might prove to be a lost cause.
If the homeowner chases their dream of staying in their home despite not having enough income to do so things can end badly. Chapter 13 cases get dismissed pretty quickly when the debtor misses their monthly payments and only a small percentage of mortgage modification applications are granted in time to truly help a desperate homeowner. In the chapter 7 bankruptcy setting when the debtor refuses to allow the trustee to sell his or her home the trustee can quickly terminate the protective boundaries imposed by the bankruptcy estate process. When that happens some mortgage companies rush to the court house steps to cash in their investment with what is often low-priced foreclosure sale. Foreclosure sales typically force the homeowner out of the home within a few weeks and with little to show for it.
So when other options are not realistic a debtor can think hard about working with the chapter 7 trustee even when selling the home is not their first preference. The debtor should take a careful look at their real ability to pay for their home. When the numbers don't add up selling it in bankruptcy can be a financially rewarding move. Trustee's are trained to maximize value of assets with the help of real estate professionals. There are trustee fees that must be paid out of the sale and there are other considerations that can impact the final decision. That's why is important for a debtor to find and consult with a local bankruptcy attorney when there is so much riding on the case.