Many homeowners in bankruptcy assume they cannot sell their home until the case is closed. That is not true. You can sell your home during both Chapter 7 and Chapter 13 bankruptcy — but you need court approval, and the process has specific requirements that differ from a standard real estate transaction.
Selling During Chapter 7
In Chapter 7, a bankruptcy trustee is appointed to manage your estate. If your home equity exceeds the homestead exemption, the trustee may sell the property as part of the liquidation process. If the trustee decides the sale is in the best interest of the estate, they will hire a real estate agent, market the property, and the sale proceeds are distributed to creditors after the exemption amount is paid to you.
If the trustee abandons the property (determines it has no value to the estate), you can sell it yourself with court approval.
Selling During Chapter 13
In Chapter 13, you retain control of your property but must obtain court approval to sell. You file a motion to sell with the bankruptcy court, provide details about the proposed sale (price, terms, buyer), and explain how the proceeds will be distributed.
The court generally approves sales that pay off the mortgage, satisfy the Chapter 13 plan obligations, and are at fair market value. Any surplus may be applied to your plan or returned to you depending on the circumstances.
Working With Real Estate Professionals
Selling during bankruptcy requires a real estate professional who understands the process — the court filings, the timeline for approval, and the coordination with your bankruptcy attorney and trustee. Not every agent has this experience.
The Hudson River Realtors referral network can connect you with agents who have handled bankruptcy sales in New York and understand the unique requirements of these transactions.
Tax Implications
Selling your home during bankruptcy can have tax implications. Any gain on the sale may be partially or fully excluded under the IRC §121 exclusion ($250,000 for individuals, $500,000 for married couples) if you have lived in the home for at least two of the past five years. Any forgiven debt may be excluded from income under the bankruptcy exclusion in IRC §108.
Consult with a tax professional before the sale to understand your specific situation.