Rumor has it the recession is over and life is just a bowl of cherries, but if you're still playing catch-up financially, it might as well be 2008--especially if your house is underwater and you can't sell it. If you're considering filing for bankruptcy, a short sale could be the right solution if you have a negative equity position in your house.
If you've been negotiating for a short sale when you decide to file for bankruptcy, the type of filing you choose has a direct bearing on the wisdom of continuing the short sale. A Chapter 7 filing automatically liquidates all outstanding debt, so there's no real reason to follow thorough with the guaranteed hassles of the short sale. Since you are relieved of the debt obligation and the corresponding tax liability under Chapter 7, the smart thing to do is simply give the keys to the lender. It's very similar to a deed in lieu of foreclosure since the foreclosure proceedings are avoided, and the bank winds up with clear title.
For Chapter 13 filings, it's a little more complicated. If you can complete a short sale prior to filing, it's beneficial to your court-ordered repayment plan. Since the house has negative equity, the lender can file a deficiency judgment to recover the difference between the monies received from the sale and the balance owed. A short sale takes your obligation down from the balance to the difference. Your repayment plan is based on a percentage of the full amount owed on all your debts, so you'll wind up paying pennies on the dollar for that deficiency.
Being underwater in your house and considering bankruptcy is a scary place to be. Our firm has decades of experience in working with you and the courts to get you the best work out for your situation, so please contact us to learn more about our services.
