Should You Sell Your Home Before Bankruptcy?

Here is some advice about selling your home before bankruptcy to free up assets and make the process of discharging your long-term debts and notes easier. With bankruptcy looming on the horizon, it's easy for consumers to make bad real estate choices. Remember that the equity you have accumulated in your current house may be worth a significant amount, instead of selling your home before bankruptcy, you may try to access some of that equity to reduce your financial burdens to the point that you don't have to file for bankruptcy in the first place.

If filing is inevitable, consider how to ameliorate the negative aspects of bankruptcy before putting your property on the market. Think about your credit report -- bad credit translates into horrible interest rates, which can leave you burdened with serious debt for years to come. Talk to agents in your area to see what prices you may be able to get for your home given current market conditions, and create contingency budgets for both moderate and worst case scenarios. Creating a conservative series of estimates is essential, since you'll likely have to pinch pennies and perform a major reorganization to bounce back from bankruptcy quickly.

There may be situations in which you can renegotiate how your mortgage is structured and thus reduce your current mortgage payments and use the savings to handle your debts in a way that doesn't involve selling your home before bankruptcy. That said, amortizing over a longer period with higher interest rates can limit your future options. In some cases, strategic bankruptcy may be favorable.

Don't lose sight of practical matters. Without a home, you'll need some functioning “base” from which to work and raise your family. Lock down a temporary place to stay, and envision a long-term financial strategy that allows you to get back into a home or at the very least create a stable, comfortable environment. Don't underestimate the psychological pressures of moving, particularly when your finances are topsy-turvy.

Finally, remember that, while bankruptcy can be a major financial setback, it can also be a chance to re-grow your business and restructure how you manage money. Use bankruptcy as an educational tool as well as a means to get rid of flagging debts. Selling your home before bankruptcy and cleaning up your financial plate may, in the long run, allow you greater leeway to pursue your life goals and create a money plan.