Troubling Times: Short Sales Vs. Bankruptcy

You’re facing a foreclosure. What do you do? Should you file for bankruptcy or try to sell short. When you sell short, you typically sell the home for less than what you owe. It’s painful, but maybe not as painful as bankruptcy – an option many homeowners rush into. bankruptcy leaves you with few options and a lot of liability. Here’s the difference between the two and some ideas on what might work out best for you.

What Happens During a Short Sale?

Selling a home short means that you did not make enough from the sale of your house to cover the costs of the loan. The remainder of the debt is often charged off. You receive a 1099 and the IRS counts this as income. You pay tax on it – no fun. But, there are benefits to doing a short sale.

For starters, Short Sales Realtor New Jersey offices often employ experienced real estate agents (certified realtors) that can sell a home inside of 6 months. This shortens the sales process for you and decreases the amount of time you spend taking care of the house for the bank. You get to move on with your life, and the bank gets the house so they can sell it to someone who can afford to pay the mortgage.

Banks will also often give you a relocation allowance if you enter into a cooperative short sale agreement. This agreement requires both you and the bank to work together to sell the house. Banks also typically give you a cash incentive to stay in the home, rent and mortgage-free, until the house is sold.

You agree to take care of the place, and they agree to pay you between $1,000 and $10,000 or more.

The Bankruptcy Option

Bankruptcy is an option that most people choose. They threaten banks with it. However, this is probably the worst option for borrowers. When you start bankruptcy proceedings with a lawyer, you pay a lot in lawyer’s fees, you may end up in Chapter 13 bankruptcy instead of Chapter 7, and you’re not going to walk away from the deal with your credit intact.

Chapter 7 bankruptcy is the chapter everyone is familiar with – you want away without paying a dime to your creditors.

Chapter 13 is what most people end up with. You repay your creditors, but on a schedule set by the court. You may even have to repay everything – your credit is still trashed and you don’t have a home when it’s all said and done.

Which Is Better For You?

Of course, there are times when bankruptcy makes sense. Maybe the housing market is so depressed that the bank is unwilling to do a short sale agreement with you, for example. But, in most cases, the short sale option is available and it’s one that the bank will recommend you try.

With a short sale, everyone wins. With a bankruptcy, you always lose and the bank might still get at least some (or all) of its money back. Whenever possible, always choose a win-win option.

Lisa Anders is a real estate professional of several years. Now semi-retired, she enjoys writing about all kinds of real estate-related topics. Look for her informative articles mainly on real estate and homeownership websites.

Save More Money in 2018

Coins 1523383 1920

Subscribe and join the worldwide 52-week money challenge! Get the tools you need right to your inbox.

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit

Share this post:

Recent Posts

Leave a Comment


What’s the Best Free Recipe App?

The Apple Store and Google Play together offer more digital cookbooks than you probably have room for on your mobile device. So which... more →
New tax law might slow down housing market.

What Will the New Tax Law Do to the Housing Market?

The new tax law will have a profound impact on the housing market, although in ways that go beyond the deductibility of mortgage interest... more →

4 in 5 Households Will Get a Tax Cut in 2018

Four out of five U.S. households will get a tax cut as a result of the legislation that President Donald Trump signed into law today. more →
Will bitcoin reach $100,000?

When Will Bitcoin Reach $100,000?

Bitcoin has accelerated its pace of appreciation in recent months, and if the current levels between $15,000 and $19,000 make you itch... more →
The Dow Jones topped 24,000 -- now what?

The Dow Jones Crossed the 24,000 Threshold. Now What?

Stocks appear to be increasing in volatility, yet the markets closed on Monday, December 4 with the Dow Jones Industrial Average is... more →
Peer mortgage

Should You Get a Peer-to-Peer Mortgage?

If you can’t get approved for a home loan from a bank, you might want to look into applying for a peer-to-peer mortgage. more →
Investment gifting is awesome.

4 Things To Know Before You Donate an Investment

While donations of any kind are appreciated, gifting investments benefits both the giver and the receiver. Here are four key things... more →
Are you wondering: What's the Relationship Between the Stock Market and Federal Debt?

What’s the Relationship Between the Stock Market and Federal Debt?

Wouldn’t it be wonderful if gains in the stock market could actually reduce U.S. government indebtedness? If that were true,... more →
The French Invent The Internet

Wait A Minitel, Did The French Invent The Internet?

France is known for many things; fine wine, the Eiffel Tower, the Tour de France, the Louvre, Victor Hugo, just to name a few.  There... more →