Short Selling Your Home During Bankruptcy
Bankruptcy Short Sale Solutions
Whether you're in a Chapter 7 bankruptcy or a Chapter 13 bankruptcy , you may be able to short sell your home. Short sells during bankruptcy are most common when a debtor files bankruptcy after already putting their house on the market. Maybe they have a potential buyer or feel they are really close to closing the sale and want to continue the process during bankruptcy. It's important for debtors to realize that they won't have too much trouble with a short sell during bankruptcy as long as the bank and bankruptcy trustee approves of the sell.
Here's what you need to know:
- Even if you are in the middle of selling your home during bankruptcy, it still becomes a part of the bankruptcy estate once you file your bankruptcy case. Your bankruptcy attorney will want to know the details of the proposed short sell such as the selling price and the current value of the home so that he/she can inform the bankruptcy trustee.
- The bankruptcy trustee will review the short sell information and give creditors 14 days to object to the short sell. Here's where problems can arise, if the buyer is not patient, the debtor could see the short sell collapse before the bankruptcy trustee grants final approval. The best course of action is for the debtor to tactfully explain to the buyer that they need to get approval of the sale and getting that approval will take at least 14 days. The debtor may want to be careful about using the word bankruptcy because some buyers may not understand that bankruptcy doesn't equal "disaster" when it comes to buying or selling a home. If you decide to mention your bankruptcy, make it clear that creditors or the trustee haven't come after the home and that they will benefit from the sell. The creditors benefit because if they took the home back, they would have the burden of reselling it and possibly lose money anyway.
- Debtors who want to short sell their home during bankruptcy should really consider the other option, simply surrendering the home to creditors. Since the debtor won't make any money from the short sell anyway, surrendering the home in bankruptcy may be the best solution if they haven't already found a buyer. Also, once the debtor surrenders the home in bankruptcy, it will enable them to discharge all the debt associated with that house, including second mortgages and home equity loans. Before proceeding with a short sell, speak with your bankruptcy attorney about the possible advantages of surrendering the home instead.