What Prompts a Home Inspection in a Chapter 7 Bankruptcy?

by Seamus Flaherty
Home inspection verifies your information or value of your property.

Home inspection verifies your information or value of your property.

Barbara Penoyar/Photodisc/Getty Images

Home inspection in a Chapter 7 bankruptcy is a rare occurrence. Certain circumstances, however, make an inspection more likely. Knowing your obligations when filing for bankruptcy, and fulfilling them honestly, can help you avoid an inspection or successfully navigate the process if it occurs.

Your Obligations When Filing for Bankruptcy

When you file for bankruptcy, you are obligated to disclose all of your creditors, assets and income. These disclosures are made in the paperwork you file with the court, known as “schedules,” and verbally to the trustee at a hearing commonly known as a "341 hearing" or “341 meeting of creditors.” You should be candid -- being dishonest during the bankruptcy process can result in penalties ranging from denial of your discharge (meaning you still owe all the debt you filed to get rid of) to being charged with perjury. Dishonesty also makes a home inspection more likely.

Trustee's Obligations

The Department of Justice appoints a trustee in every bankruptcy case. The trustee reviews your paperwork and oversees any payments made to your creditors. Like you, the trustee has certain legal obligations. She must investigate your financial affairs and collect and sell any eligible property you have for the benefit of your creditors.

Inspections Based on Suspected Dishonesty

If the trustee suspects you have not been truthful in disclosing all of your assets or their value, she may ask follow-up questions at the 341 hearing or in writing. If the trustee still is not satisfied, or a trustworthy person with believable information tells the trustee you have not been truthful, she may take steps to inspect your home. To do so, the trustee must petition for a court order allowing an inspection. If the court grants the petition, the trustee can then come to your home and conduct an investigation to determine whether your disclosures have been truthful.

Inspections to Appraise Value

Another reason your home might be inspected is so the trustee can get a better idea of how much your possessions are worth. When you file for bankruptcy, you are allowed to exempt some of your assets, meaning you can keep different types of assets - up to a certain dollar amount in value - out of reach of creditors. The amounts vary depending on what state you live in. However, even with careful planning, you may not be able to exempt all of your assets, such as equity in your house, vehicles or other high-end goods. The trustee may then decide to sell those goods and distribute the proceeds to your creditors. Upon making that decision, the trustee may send someone to your home to appraise the property and then sell it.