This question: can I short sell My House after Chapter 7 Bankruptcy, is one bankruptcy attorneys hear often. A better question might be not “Can I” but “should I?” short sell my home after receiving a Chapter 7 debt discharge. The automatic stay helps prevent banks from forcing a foreclosure sale of the property, a big advantage. So why would anyone consider going through the trouble of saving a home when you’re just going to turn around and sell it?
Secured Debt in Chapter 7 Bankruptcy
In a Chapter 7 bankruptcy case, your debt is essentially categorized into three buckets: nonpriority unsecured (such as credit cards and medical bills), secured (your home mortgage), and priority (alimony, taxes). Secured debts allow a creditor to repossess the property, sell it, and obtain a deficiency judgment for the difference of the loan mortgage amount and the sale price of the home. So, with secured debt, you have a personal liability to pay the debt and the security interest, which is represented by the mortgage company’s first lien on your property. Chapter 7 bankruptcy offers you two options with secured debt if you are current on your payments at the time of filing. On one hand, you can give up the property and discharge the debt, and on the other, you can reaffirm the debt if you wish to keep the property but keep making payments.
Does a Short Sell after Chapter 7 Bankruptcy Make Sense?
Giving the options, you don’t have to sell your home in a Chapter 7 bankruptcy if you want to keep the house and are willing to accept the liability to pay the mortgage. In giving up a house, especially one that is “upside down” (mortgage balance is higher than the worth of home), Chapter 7 bankruptcy allows you to simply walk away from the debt.
Now, when you consider short selling a home after bankruptcy, you are not making any profit if you owe more money than the house is worth. In fact, you may even be required to pay taxes on the sale causing a net loss. Another reason that short sells can be a pain, is the short sell process itself. You’ll need to contact your mortgage lender to present a sales contract, have them review it, obtain appraisals, and a number of other steps to successfully sell the home. In closing, a short sale benefits many people except the seller.
Alternative to Short Selling After Chapter 7
Before filing for Chapter 7 bankruptcy, you should definitely consider which assets you want to keep and which you long want. Chapter 7 bankruptcy is an amazing tool to help prevent losing your house. Additionally, when you reaffirm the debt in Chapter 7 bankruptcy, you are essentially proposing a new contract and, with the right help, may be able to obtain better mortgage terms than your original. If you’re interested in discharging debts in as soon as 4 months with Chapter 7 bankruptcy while keeping your house, contact your local Dayton Ohio bankruptcy attorney to discuss your options and make a decision to eliminate your debt.