Short Sale During Bankruptcy

If you want to do a short sale during an active Chapter 13 case, you can proceed but you will need the permission of the trustee and the court, or you can make the sale contingent upon dismissal of your case and just dismiss your case before the close of escrow.   But you may not need to do the short sale during the actual bankruptcy process.  In fact, in most cases you can simply sell your property before or after your case is filed and without the need for obtaining court approval.  This makes the process quicker and more efficient and takes away one potential obstacle and impediment to completing the sale.

Attorney Can Help You Do a Short Sale During Bankruptcy

Before asking an attorney to help you do a short sale in bankruptcy, first determine whether it is absolutely necessary to sell your property during the pendency of your bankruptcy case.  Otherwise, you can plan to complete the sale before your case is filed or after your case is completed so that you won't need to go through the extra step of obtaining court approval of the sale.  There are different strategies you will want to employ depending in whether to sell before, during or after the San Diego bankruptcy process. 

Before Bankruptcy 

Doing a short sale before bankruptcy does not require court permission, however you may need to disclose the terms of the sale to the court.  Depending on the timing (how long before you file) and the circumstances, it may or may not affect the outcome of your case. 


If you sold any real estate within two years of the date you file bankruptcy San Diego, then your lawyer will have to disclose the sale in your petition and schedules.  More specifically, you will have to disclose it in your Statement of Financial Affairs as a transfer of property occurring during the two-year period prior to your filing.


If you sold your real estate more than two years ago but less than four years before the date of your filing, then your attorney will have to disclose the sale to the trustee at your meeting of creditors on a questionnaire that you must complete in connection with your meeting of creditors.


If the sale occurred more than four years prior to your filing, then you and your lawyer typically won’t even bring it up and typically will be a nonissue.

During Bankruptcy

How short sales are dealt with during bankruptcy depends largely upon the type of case and Chapter that you file under.


In a Chapter 7 case, if your home or rental property is underwater (you owe more on your loans than what it is worth, which will typically be the case if you are trying to do a short sale), then the bankruptcy trustee will usually not assert any interest in your home and you can do whatever want with it. 


In a Chapter 13 case, similar to a Chapter 7 case, if your home or rental property is underwater the trustee will typically consent to you doing a short sale. You can either file a motion to allow the sale, or ask the trustee to stipulate (agree) to the terms of the sale and the Court will usually approve it.

After Bankruptcy

After bankruptcy, that is, once your case is completed, you can sell your real estate provided that you did not give up your property or lose control of it as part of how your case was handled and concluded.  If you managed to hold on to your property, you can sell it as you wish.


If you are trying to do a short sale after bankruptcy, then it usually means that your property is upside down (you owe more on your loans against the property than what the property is worth), therefore the trustee likely will not assert any interest in it.   You will remain on title as owner and after bankruptcy, as owner, you can do whatever you want with the property.

Liability for HOA Fees

Why would you want to do a short sale after bankruptcy?  Well, there actually is a very good reason to do so. After bankruptcy, if you remain on title, you continue to be liable for HOA fees after bankruptcy.  So if you are planning to give up your home or rental property, you'll want to get off title as soon as possible.  Sometimes lenders will delay foreclosures for months or even years.  By selling the property, you can have some control over how quickly title is transferred out of your name and your responsibility for HOA fees will cease.

Lender’s Discretion

The foregoing all assumes that your lender is willing to agree to a short sale.  If your lender does not agree, then you cannot forcefully do a short sale against your lender’s will.  So if you are behind on your payments, you will have to convince your lender to voluntarily forbear from doing a foreclosure of your property until you can complete a sale.