Can a homeowner complete a short sale of his or her property after a Chapter 7 bankruptcy or Chapter 13 bankruptcy has been filed?
The answer is generally yes as long as certain requirements are met. Completing a short sale is possible while in bankruptcy.
In Chapter 7 bankruptcy, a Motion must be filed with the bankruptcy court in order to force the Chapter 7 trustee to abandon his or her interest in the property. This can be done by showing that the person that filed for Chapter 7 bankruptcy does not stand to earn any profit from the short sale of their property. Exhibits that can be attached to such a Motion include the escrow instructions, the purchase and sale agreement, and the estimated closing statement.
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Likewise, in a Chapter 13 bankruptcy, a person can also complete a short sale of his or her property so long as permission is requested and obtained from the bankruptcy court. In the Chapter 13 context, a Motion for Authority to Sell Real Property would have to be filed with the appropriate exhibits.
Either way, bankruptcy judges will generally approve a bankruptcy filer’s request to proceed with a short sale while in either Chapter 7 bankruptcy or Chapter 13 bankruptcy so long as everything is properly disclosed.
It is rare for creditors to object to such Motions. Secured creditors that have an interest in the property being short sold should have no reason to object when they have agreed on the amount being provided in the sale. And unsecured creditors also should have no reason to object since the person selling the property is not receiving any money from the sale.
It is important to note that bankruptcy courts cannot force banks to agree to a short sale. However, a bankruptcy judge does have the authority to issue an appropriate order that will allow a pending short sale to move forward even while the homeowner is in an active Chapter 7 bankruptcy or Chapter 13 bankruptcy.