Facing bankruptcy is overwhelming—especially when you also own a home and aren’t sure what to do with it. Many California homeowners wonder the same thing:
“Is it smarter to sell my house before filing for bankruptcy… or after?”
The truth is, both options can work, but the right choice depends on your equity, your income, how far behind you are on payments, and whether foreclosure is already looming.
This guide breaks down the pros and cons of each path, with real-life examples from sellers we’ve helped, plus key laws that impact your decision. For more guide, read our blog on How to Stop Foreclosure in California.
What Bankruptcy Means For Your House
Understanding What Happens to Your Home in Bankruptcy (Chapter 7 vs. Chapter 13)
Chapter 7 Bankruptcy (Liquidation)
Chapter 7 wipes out unsecured debt but may require selling assets—including your home—if there’s non-exempt equity.
California has generous homestead exemptions:
- $300,000–$600,000 (varies by county & home values)
If your equity falls under this exemption, the bankruptcy trustee generally cannot force a sale.
If your equity exceeds it, they can.
Chapter 13 Bankruptcy (Repayment Plan)
Chapter 13 is structured to help you keep your home by reorganizing debt over 3–5 years.
If you’re behind on your mortgage, Chapter 13 can give you time to catch up.
Should You Sell Before or After Filing? (Quick Overview)
Selling before bankruptcy is usually best when:
- You have equity you want to protect
- You want to avoid bankruptcy entirely
- You’re behind on payments but foreclosure hasn’t started
- You need to walk away with cash for a fresh start
Selling after filing is sometimes best when:
- You need time to stop foreclosure through the automatic stay
- You want the bankruptcy court to protect your home temporarily
- You’re filing Chapter 13 and planning to catch up on payments
Below, we break it down in depth.
Selling Before Filing For Bankruptcy
Why Selling Before Bankruptcy Often Makes the Most Financial Sense
Selling before filing gives you more control, keeps the courts out of the decision-making, and protects the equity you’ve earned—especially in California, where home prices are high.
Benefits of Selling Before Bankruptcy
1. You Protect Your Equity
If you sell before filing, you keep your equity without worrying about a trustee taking it.
Many homeowners choose this option simply because they don’t want the bankruptcy court touching the home sale or funds.
2. Helps Avoid Bankruptcy Entirely
If you use sale proceeds to pay off debt, you may no longer need to file bankruptcy at all.
We’ve seen this many times.
Example:
“Gloria,” a seller in Whittier, was 5 months behind due to medical bills. She assumed bankruptcy was her only option. After selling her house as-is, she paid off nearly all her credit cards and avoided bankruptcy altogether—saving her credit score from a 7–10 year hit.
3. No Trustee Scrutinizing Your Finances
When you sell before filing, you don’t need the court’s approval, nor do you need to explain how you spend the money (within reason).
If you wait until after filing, every dollar is monitored.
4. You Can Move Faster
Bankruptcy often slows the sales process because court approval may be required.
Selling before filing avoids this.
5. Avoids the 90-Day Lookback Issue
Bankruptcy courts can reverse (“claw back”) certain pre-bankruptcy transfers made within 90 days if they think the transaction was unfairly structured.
But normal home sales at fair market value are usually safe when done before filing.
When Selling Before Bankruptcy Makes the Most Sense
- You have equity
- You’re trying to avoid foreclosure
- You want to avoid court involvement
- You want cash to start over
- You want the cleanest, fastest exit possible
Selling to a cash buyer is especially helpful if:
- The home needs repairs
- You’re behind on payments
- You’re facing auction soon
Many of the homeowners we work with want a 7–14 day closing while avoiding showings, repairs, and delays.
Selling After Filing For Bankruptcy
Why Sell After Filing?
Selling after bankruptcy is less ideal for many, but it can make sense under specific circumstances.
Benefits of Selling After Bankruptcy
1. Bankruptcy Can Immediately Stop Foreclosure
Once you file bankruptcy, the automatic stay pauses all collection—including foreclosure.
This gives you breathing room to sell when time is running out.
Example:
“Mike” in Riverside was 7 days from auction. Selling before filing wasn’t possible. His attorney filed Chapter 13, stopped the sale, and Mike sold the home 45 days later.
2. Chapter 13 Allows You to Catch Up
If your goal is to keep the home, a sale isn’t your first move—but if plans change later, you can still sell during the repayment plan.
3. It Can Help You Transfer a House With No Equity
If you owe more than the house is worth, selling after filing (with court approval) can be part of the bankruptcy strategy.
Drawbacks of Selling After Filing Bankruptcy
1. You Need Court Approval
This is the biggest downside.
Selling your home becomes a legal process involving:
- The trustee
- Your bankruptcy attorney
- The judge
This can add weeks—or months.
2. You Likely Won’t Keep All the Equity
Courts may use part of the proceeds to repay creditors, especially in Chapter 7.
3. Your Financial Transactions Are Monitored
You can’t freely use sale proceeds until the court approves your plan.
4. It Slows the Sale
If you’re under foreclosure pressure or need quick cash, this can make things more stressful.
Which Option is Better? Here’s a Simple Decision Chart
- Do you have equity?
→ Sell before filing. - Is foreclosure days or weeks away?
→ File first (Chapter 13) to stop sale, then sell. - Is your home upside down?
→ It may not matter—bankruptcy might wipe deficiency. - Do you want cash to restart your life?
→ Sell before filing. - Do you need time and protection from creditors?
→ File first, then sell.
Example Seller Stories (Fictional But Based On Real Patterns)
Case #1 – Saved from Trustee Sale
“Angela” from Van Nuys had $240k in equity. She filed bankruptcy first, thinking it was the right move—but doing so triggered the trustee to claim most of her equity. After months of legal back-and-forth, she left with far less than she expected.
Had she sold before filing, she would’ve kept all of it.
Case #2 – Bankruptcy Gave Time to Sell
“Kevin” in Compton was 6 days from foreclosure sale. Filing Chapter 13 bought him time. He then sold his home to us as-is within 18 days and walked away debt-free.
Do California Bankruptcy Laws Favor Selling Before or After?
Generally, California homeowners benefit more from selling before filing, especially with high equity values.
California’s median home equity is among the highest in the U.S., which means the trustee is more likely to want part of the sale if you file first.
When Selling AS-IS For Cash is The Best Move
A cash sale is often the fastest and cleanest option when:
- You’re in financial distress
- You need a quick closing
- The house needs repairs
- You want to avoid court involvement
- You want to move on fast
At Mrs. Property Solutions, we’re often able to:
- Stop foreclosure (depending on auction date)
- Buy as-is
- Close in 7–14 days
- Help coordinate with your bankruptcy attorney
We’ve worked with many bankruptcy attorneys and trustees over the years.
MRS. PROPERTY SOLUTIONS — HOW WE CAN HELP
If you’re facing bankruptcy or worried about foreclosure, we can walk you through your options, run the numbers, and help you understand your best path—even if that means not selling to us.
When it is the right fit, we make selling simple:
- No repairs
- No showings
- No fees
- Fast and fair offers
- Help navigating bankruptcy timelines
You don’t have to figure it all out alone—we’re here to help.