Choosing Between Bankruptcy or Short Sale

As a homeowner, which option is best for you? Bankruptcy or Short Sale?

Should you file bankruptcy or short sale? In this episode, I’m gonna go over the myth that people have regarding bankruptcy and short sale. Stay tuned.

So here is the myth. Once you file bankruptcy most people think that the property of the house, if they included the house in the bankruptcy, that the bankruptcy gets rid of the house and that is wrong. Okay? The bankruptcy gets rid of the liability or the creditor that they’ve included in the bankruptcy but does not get rid of the house. The house is still under the homeowner’s name and still titled under you. The only way that you can get rid of the house or remove the name of the homeowner is to do three things.

One is you can do a short sale. Basically, to convey the property via short sale or two, you can do a deed in lieu; or the third, let the bank foreclose on the property and then they get titled to the property.

Going into a little bit deeper into this topic of bankruptcy and doing a short sale. I want you to understand from the point of view of the bankruptcy attorney and of the agent that is trying to do the short sale. When a homeowner goes to the bankruptcy attorney, you have to understand that the bankruptcy attorney wants your business. And so they are going to say they do the bankruptcy first and then you can do the short sale afterward. Okay? The same thing can apply to going to the agent because they want to do a transaction and so they may want to push you to do the short sale first before filing bankruptcy.

I’ll give you my opinion at the end. But I want to clearly emphasize that I’m not a bankruptcy attorney and I’m not an agent so I want you to understand that I’m giving you an unbiased opinion but at the same time please seek competent professional help when it comes to this situation.

In order to give you a more detailed explanation as to whether to file bankruptcy or to do a short sale first is it really depends on your situation. I’m going to give you a couple of scenarios that will help clarify the decision whether to file bankruptcy or a short sale. First, in going over these scenarios I want you to understand, I’m trying to explain it what’s in the best interest of you the homeowner. All right? So let’s go over those scenarios. I’ve got three scenarios.

  • The first scenario is generally what I recommend, is to do the short sale before the bankruptcy. Now, this is generally the case when a homeowner does not have any creditors or credit card debt. The only thing that’s outstanding is their home which is underwater and they’re trying to do a short sale. The reason that in that case is that you may not necessarily have to file bankruptcy. You can do the short sale and then thereafter file an exemption with your CPA. And so, therefore, you can save yourself the cost of doing a bankruptcy because it’s not necessary. That’s one scenario.

  • And the second scenario is when you have your home, you try to do short sale however you have other creditors and judgments that are reflected in the title. But by doing the short sale you’re able to settle or pay off those judgments and creditors in the short sale transaction. So this situation may depend because you know the homeowner may not be in a situation where they qualify for bankruptcy. So you may not qualify for the bankruptcy so you do the short sale so that you can try to settle the other judgments and the creditors.

  • The third and last situation is you have a homeowner that has a tremendous amount of judgments or liens on the title that prevents us or for you to sell your property because you have a cloud on title. And so, in that case, I recommend to the homeowner that they have to file bankruptcy and then to clear those judgments and liens so that we can do the short sale. So let me emphasize again, I am not a bankruptcy attorney and I’m not an agent. But if you are looking for some advice or consultation regarding whether to file bankruptcy or short sale and which one to do first, give me a call 201-297-6965.

We help homeowners, attorneys and agents close a short sale. So if you are looking to do a short sale and you’re facing a sheriff’s sale in the next couple of months give us a call 201-645-4990.

We Help Homeowners, Attorneys and Agents in New Jersey and New York close on their short sales.

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