As more and more homeowners have found themselves upside down on their mortgages, an increasing number of people have wanted to know if they can complete a short sale while in bankruptcy. A short sale is a real estate transaction in which the sale proceeds equal less than the amount owed. For example, if you owe $150,000 on your home and sell it for $120,000, that would be a short sale. The simple answer is yes, you can complete a short sale while in bankruptcy. However, you must consider many factors before doing so. If you are exploring debt relief options such as short sale and bankruptcy, let an experienced Maryland and Washington DC bankruptcy attorney help you make the decision that is right for you.
Short Sale Benefits
For homeowners facing foreclosure, a short sale may offer them the chance to avoid foreclosure. Unfortunately, it is not always an option, as the lender must agree to accept less than what you owe. If your mortgage lender is open to a short sale, here are some potential benefits of going that route:
- No foreclosure on your credit report
- Eligible to buy a home under Fannie Mae guidelines after two years
- Able to meet your home’s new owners
- Sense of pride that you sold your home instead of losing it to foreclosure
Although bankruptcy alleviates the need for short sale in many cases, for some people, it is a good choice. For instance, if you want to buy another home in the near future, or if you are in Chapter 13 bankruptcy and the deficiency balance on your home could result in much higher plan payments, you may want to consider a short sale. A knowledgeable Washington DC and Maryland bankruptcy lawyer can help you weigh the pros and cons of short selling your home inside and outside of bankruptcy.
Short Sale Drawbacks
Below are some potential downsides to short selling your home:
- Your credit rating will take a hit for up to seven years
- Your lender may require personal records, such as tax returns and bank statements, to complete the short sale process
- You’ll have to keep your home clean and ready to show until you receive an offer
- There are no guarantees the lender will accept the offer
- You could have tax consequences if the lender forgives the deficiency balance
Many people find it is better to surrender their home through bankruptcy than to short sell it. By surrendering your home through Chapter 13 or Chapter 7 bankruptcy, you can avoid tax consequences, forgo having to show your home to potential buyers, and move forward without the stress of wondering whether a short sale will go through or not. However, in certain situations, a short sale in bankruptcy may be the way to go. A dedicated Washington DC and Maryland bankruptcy attorney can help you make a sound decision concerning your home.
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