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).
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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.