Will the Bankruptcy Trustee sell my home if I file a Chapter 7
Many lawyers will use scare tactics to encourage people to file a Chapter 13 which pays the attorney about three times more than an average Chapter 7. Often the attorney will use Zillow values to justify filing the case as a Chapter 13. The fact is most clients have only a small amount of equity. If you are asking yourself “will the Bankruptcy Trustee sell my home” you need to make sure it does not happen by doing an analysis with a qualified attorney. Getting it wrong hurts.
The exemptions allow joint debtors to keep 56,000 or more in home equity when they are both on the deed. Each person on the deed is allowed 28,000 or more if your state uses the Federal exemptions. If a son is on the deed with his parents you have 84,000 or more you can protect in equity. It is rare that a home is at risk.
To justify selling a home the trustee has to show that it would benefit creditors.
The trustee must show that after the cost of sale and allowing each person on the deed who files a bankruptcy 28,000 for their Federal exemption or the amount of the state exemption. Kentucky uses the federal exemptions. If your home PVA (property valuation assessment) is 108,000 the Zillow valuation will often be much more. Zillow is often used by real estate agents to encourage you to list your home for sale. It is rare for a home to sell for the price in Zillow.
The Trustees will often look at the Zillow value understanding Zillow gives a higher value than a home will ever auction for. Similarly, NADA is often much higher than Kelly Blue Book valuations for autos. Trustees only sell a home when the sale will provide a benefit to creditors (and pay them enough to be worth a sale). Below is an actual recent example. Even using a Zillow value which is 70,000 higher than the PVA value would not produce any value to the creditors.
A typical Trustee home sale analysis.
In the below example the PVA home value is 108,000 but it uses the 25,000 dollar deduction from 2021. After deducting the home mortgage, value of the exemptions the couple is allowed and the costs of selling the property there is nothing left. The Real Estate Broker fees, and Trustee fee are a percentage of the sale price of the home. The Trustee also normally pays the seller closing costs and the property taxes. When the sales price goes up with Zillow any non-filing spouse gets to keep more in equity and the variable real estate broker fees and trustee fee also increase. Plugging in these values show that just because a sales price may increase, the net proceeds from the sale may still not justify a sale.
An analysis of “will the Bankruptcy Trustee sell my home”
| If the home sells at PVA values | If the home sells at Zillow values | Pay Back on PVA value | Pay back with Zillow value | |
| Published Home Value | 108,000.00 | 174,000.00 | ||
| Mortgage | 89,000.00 | 89,000.00 | 19,000.00 | 85,000 |
| His ½ net value of the home | -42,500.00 | -42,500.00 | (23,500.00) | 42,500.00 |
| Her Exemption She is filing not him | 25,000.00 | 25,000.00 | (48,500.00) | 17,500.00 |
| 6% Broker Commission | 6,480.00 | 10,440.00 | (54,980.00) | 7,060.00 |
| Trustee 10% Fee | 10,800.00 | 17,400.00 | (65,780.00) | (10,340.00) |
| Seller Closing costs | 3,000.00 | 3,000.00 | (68,780.00) | (13,340.00) |
| There is no sale if Creditors get 0 | Minus | Minus |
An actual sale of a home is rare but if the home is worth 500,000 and there is only a 100,000 mortgage and only 50,000 in exemptions the home would be sold. If there is over 300,000 in equity after the costs of the sale and deductions for the exemptions and mortgage the creditors would receive over 200,000 in a distribution. It would not matter if you are widow with 3 orphans the home would be sold. The Trustee will do his job.
The Trustee must sell the home if the sale would provide a “meaningful distribution to the creditors”. 3,00 or 4,000 dollars is normally not a meaningful distribution. A 50,000 dollar distribution normally is a meaningful distribution. Most Trustees would offer the debtor the ability to keep the home if the home had too much value above the exempted property allowance and the costs of sale. The Debtor would simply pay the 10,000 the creditors would receive and keep his home.
Chapter 13 and the safe method to file
Although a Chapter 7 trustee can force you to stay in a bankruptcy while he sells property a Chapter 13 case can almost always be dismissed. A Chapter 13 depends on the voluntary payments of the debtor to fund the plan. The debtor in a Chapter 13 promises and agrees to make payments and the creditors promise and also agree to the plan of repayment.
If a creditor has a valid objection then he can object to the plan and the judge will consider the objection. Priority debts and secured claims like a mortgage must normally be caught up during the plan. If the plan fails to do this the plan will be rejected.
But the debtor always has the option to dismiss his own case. The reason why the debtor in a Chapter 7 is not allowed to dismiss his own case is often due to hiding assets or improper transfers. When the trustee uncovers hidden assets or fraudulent transfers he recovers the property and sells it. Normally when you prepare the petition your attorney will advise you immediately if there is a risk of losing it. When there is a risk you should file a Chapter 13.
Sometimes you want to risk losing an asset
When you have a lot of debt such as 25 million or more and you will only lose a small 10,000 dollar asset by filing a Chapter 7 perhaps it is best to sacrifice the asset so you eliminate the 25 million in debt. That is a simple and reasonable answer to the debt problem. Never be afraid to lose a small asset have a huge increase in net worth. You can often replace a small asset.
If the asset is small the trustee may not even want it and may abandon it. The trustee is hoping to make 250 an hour for his time or more. If selling a 1,000 dollar ATV will take 4 hours of his time the ATV is not worth taking. Still many people are worried about their bass boat or camper when it has little or no value for the creditors. Allowing the trustee to sell and asset means the sale is done properly through a court supervised sale with rules. In state court it is normally the first to sue and attach an asset wins.
Always remember the trustee works for himself and the creditors.
If there is little or no real value the trustee will often abandon assets worth 3,000 dollars or less. There is no solid rule for what a trustee may want to sell. There is also no set in stone rule for what he is looking for as an improper transfer. Typically, Cash and checking accounts are easy to transfer to the trustee so he can pay creditors. Other items like health equipment are hard or impossible for the trustee to sell.
When the asset can be easily be given up and you have a lot to gain you should consider allowing the asset to go back so you can increase your net worth. With some assets, the Trustee will never sell the asset or want the asset. But a different Trustee may have an entirely different attitude and may want the same asset believing he can pay creditors with it. Your lawyer should have a working relationship and knowledge of what the trustees want.
Our first appointment is free if you are asking will the Bankruptcy Trustee sell my home.