Short Sale Before Bankruptcy
For debtors who can’t meet their monthly payments and who are facing foreclosure, short sale can be an option. When the proceeds of a debtor’s real estate sale fall short of the balance owed on the property’s mortgage, it is called a short sale. A creditor can agree to do this if the debtor can no longer make the monthly mortgage payments on the property and the creditor decides that a moderate loss on the property is better than risking the debtor’s bankruptcy. In many cases, creditors will agree to a short sale, before bankruptcy is the only option left. The debtor will remain obligated to repay the remaining balance of the loan, unless otherwise agreed by both creditor and debtor. It is evident that the debtor may still not be able to meet his monthly payments, depending on how high the remaining balance is and the rest of his financial situation, and still may have to file for bankruptcy. Creditors can obtain a debtor’s credit report and evaluate the possibility of bankruptcy. This can cause them to instigate short sale before bankruptcy, because if the debtor files for bankruptcy, the creditor is not assured repayment of the monies owed. A short sale before bankruptcy can ensure the creditor’s recovery of the bulk of the loan, and make the repayment of the remaining balance easier for the debtor to repay without filing for bankruptcy.
Short Sale vs. Bankruptcy
When you’re considering short sale vs. bankruptcy, it’s important to evaluate just how the results of the short sale will affect your financial situation. You need to find out what the remaining balance on the loan will be after the short sale, and how feasible it is given your current financial situation that you can make your monthly payments. In the matter of short sale vs. bankruptcy, if the resulting balance after a short sale is too high for your debt-income ratio, you will have to file for bankruptcy after all. Another aspect to consider in the question of short sale vs. bankruptcy is that for most people, a short sale will eliminate their one valuable asset, i.e. their home, which makes a chapter 13 bankruptcy impossible. In contrast, if you file for chapter 13 bankruptcy before a short sale, you are usually allowed to keep your home if a repayment plan is deemed feasible by the court. Both short sale and bankruptcy are complicated legal processes and for debtors considering short sale vs. bankruptcy, it is advisable to retain the services of a qualified bankruptcy attorney to investigate your financial situation and explain to you what your options are.
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