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If I sell real estate on contract for deed can the buyer file bankruptcy to get out of paying the contract?

Asked on July 17, 2018 under Real Estate Law, Oregon


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

While someone has to qualify for bankruptcy (their situation, their assets and income vs. debts and obligations, etc. have to meet certain criteria) in order to file successfully for bankrupty, assuming that someone is eligible for bankrupty, then yes, they can use bankrupty to get out of some or all of the payments due under the contract. However:
1) If the seller did not transfer title yet (i.e. it is only transferred when the last payment is made), the buyer will not get the property without paying everything--the seller will keep it.
2) If title was transferred by the seller retained the right to foreclose if not all payments are made (the way banks do in mortgages), then if the buyer does not pay, the seller can take the property back. The bankruptcy process will delay and complicate matters, but if the sale agreement included the right to foreclose, the seller *will* be able to regain the land--the buyer cannot keep it without paying.
This is why when you sell on a contract or over time, always either don't transfer title until the last payment is made or make sure you can foreclose.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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