Selling A House and Bankruptcy Question

[questions]

I have a friend who will likely file for Chapter 7 bankruptcy. If possible, would it be better for my friend to sell her house prior to filing for bankruptcy? I am assuming that her credit will be hurt less if she doesn't have a morgage default along with all of the credit card default.

My friend's bankruptcy attorney, however, is trying to convince her that it is better to NOT sell the house before filing bankruptcy. This really does not make any sense to me. I am concerned that the lawyer is not giving my friend an accurate picture.

Question: If possible, would it be better for my friend to sell her house before declaring chapter 7?

[sweeps]

A primary home is usually considered a protected asset in bankruptcy. If your friend is set on filing chapter 7, her attorney may be advising her not to sell because the equity in the house may no longer be protected.

Another factor here is that the bankruptcy laws have changed and your friend may be required to file chapter 13 instead of chapter 7 depending on her situation -- again, selling the house could change the situation.

The laws can be quite complex and your friend needs to be able to trust her attorney. If she doesn't then she should find another one. The concern about her credit is a bit of a non-issue, in my opinion. If she files for bankruptcy, her credit is going to take a major hit any way you look at it.

[shepav]

I agree. I'm a credit counselor and deal with people filing everyday (they now need to call us under the new law). You have to be careful how soon before you file that you sell the house. Just like if you were to go out and charge $1000 on your credit card and then file the next day - the courts probably wouldn't let you keep whatevever you bought b/c it looks suspicious.

Trust the attorney, but if her gut is telling her to look elsewhere she may consider getting a second opinion from another lawyer.

[instantinfo4you]

I agree, if you can't trust your attorney, then find another one. There are plenty out there, it's not like there is a shortage of bankruptcy attorneys. One reason the attorney could be advising here not to sell the house, is because then she would have all that capitol from the house that the court might seize to pay towards the debts. My advice is to listen to the attorney, because if you don't then what is the point in having one in the first place?

[scfr]

Her lawyer's probably giving her good advice based on the law in her state. A primary residence is a protected asset in many cases. For example: OJ Simpson still has his house, and has not paid a dime of the money awarded to the familes of his "alleged" victims.

[SavedintheCity]

YOUR FRIEND SHOULD LISTEN TO THE ATTY!!!!!!!!!!!!!!

They may even be able to KEEP their house after bankruptcy!!!! Most lenders will agree not to foreclose if you keep making mortgage payments throughout the bankruptcy and if you reaffirm the debt during bankruptcy. Actually it would be a HUGE mistake to sell the house now BEFORE bankruptcy. Their credit report should be MUCH BETTER after bankruptcy with the mortgage still active!!!!