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Short Sale Before Bankruptcy or Vice Versa?

Posted by Rory Vohwinkel | Jun 13, 2018 | 0 Comments

As bankruptcy lawyers Las Vegas, we're often asked whether our clients should proceed with a short sale either before or after filing for personal bankruptcy.

Let's begin with a brief primer on short sales. That's when your lender agrees to let you sell your home for less than what's still owed for it. In other words, if you owe $100,000 on the home, your lender might agree to a sale of $90,000 and release you from having to pay the additional $10,000 in interest and late-payment penalties. Your mortgage holder might consider such a transaction simply to get you out of the home and get someone else in who can make payments.

You'll consider a short sale when your house is “underwater.” That is, you owe more than you could hope to recover by selling your place. If, after all, you could make a profit on the sale you would.

Now let's look at whether you should consider a short sale in association with each type of personal bankruptcy. Remember, a Chapter 7 bankruptcy results in the liquidation of your unprotected assets while a Chapter 13 plan is a reorganization of your payments toward what you owe.

SHORT SALE BEFORE CHAPTER 7 ACTION

Nope. It makes little sense since a Chapter 7 bankruptcy will include loss of the home and a wipeout of the debt you hold anyway. It's just a needless hassle to try to set up a short sale and unload your property at any point in the process when your mortgage holder will eventually do that for you anyway. With a Chapter 7 bankruptcy, you'll simply turn over the keys.

SHORT SALE BEFORE A CHAPTER 13 CASE

This scenario gets a little more complicated. A short sale before a Chapter 13 filing can reduce the amount you're responsible for paying on a monthly basis as part of your reorganization payment plan. That's because if your home is under foreclosure the difference between what you owe and what your home will bring in a sale is assigned to you as more unsecured debt. So by giving up the home in a short sale before filing, you'll have a lot less unsecured debt to wrap up into your payment plan.

Initiating a short sale during or as part of bankruptcy proceedings will not further hurt your credit report (beyond the major dings it will already take in bankruptcy).

CALL US TODAY

It's a complicated issue, with many moving parts, but as an experienced bankruptcy lawyer Las Vegas NV I'm here to help. Call us today for expert guidance through this complex process.

About the Author

Rory Vohwinkel

Rory Vohwinkel began his legal career at one of Nevada's oldest and largest law firms, representing clients in commercial litigation and business transactions. Rory went on to serve as the sole in-house attorney for a national real estate investment and property management company. In 2009, Rory...

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