Should we sell our house, short sale, or file bankruptcy? 12 Answers as of June 08, 2011

We are currently 3 years behind on our mortgage and the bank has told us that our options are a short sale or deed in lieu of foreclosure. We have a small amount of unsecured debt, less than $4,000 and we are trying to figure out the best option. We would like to keep the home, but are contemplating the short sale or selling it ourselves( if we could get enough to pay off the loan). It seems the only way to save the house is to file a chapter 13 bankruptcy, but the home is the reason we would be filling. We could make the payments for the chapter 13 restructure, but it would be tight and then I fear our credit would be trashed. Is it worth it to file a chapter 13 to save the house when we don't have a lot of other debt and we are possibly willing to walk away from the home?

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Daniel Hoarfrost, Attorney at Law
Daniel Hoarfrost, Attorney at Law | Daniel Hoarfrost
You have to decide whether you want to keep the house or not.If you want to keep it, a Ch 13 may be used to cure defaults, but ultimately, the mortgage has to be paid off.If your other debts are small and you're not that upset about giving up the house, you can work with the lender and surrender the house.Bankruptcy may not be necessary.
Answer Applies to: Oregon
Replied: 6/8/2011
Burnham & Associates
Burnham & Associates | Stephanie K. Burnham
If you have any concerns that paying into a Chapter 13 Plan may cause further hardship, you may want to avoid filing. If you can sell your house, short sale or full price, that should be your first course of action. If it becomes impractical, you should consider a Deed in Lieu. Speaking with a Bankruptcy Attorney will give you a better understanding of your entire financial situation and whether or not Bankruptcy is something that would make sense.
Answer Applies to: New Hampshire
Replied: 6/8/2011
Law Office of Maureen O' Malley
Law Office of Maureen O' Malley | Maureen O'Malley
If you can get a deed in lieu of foreclosure, that would be the best way. Short sales are difficult and time-consuming and often require the seller to take responsibility for the balance owed, thus defeating the purpose. If you could actually sell it for enough to pay the loan, that would also be excellent. In a Chapter 13, you would have to have enough money in the Plan to pay all the late payments by the end of the 5 years, as well as enough to pay your normal expenses and current mortgage payment. If you can afford to do that, then you'll be in good shape. Credit will be trashed if you short sell, too. Credit is the least of your concerns, IMO. The best analysis is to determine fair market value v.s. debt. Are they close? Good news. Are they widely divergent? Not so good, and you should ask whether the value will ever rise to meet the debt.
Answer Applies to: Virginia
Replied: 6/8/2011
The Schreiber Law Firm
The Schreiber Law Firm | Jeffrey D. Schreiber
First it depends on what the house is worth versus what is owed. Throwing money into a house where there is no equity where there will not be any for years is a waste of money unless the amount you are paying each month is about the same as what you would pay for rent. The house is not an investment, it is now just shelter and overpaying for shelter is a waste of money. Further, in a Chapter 13 you would have to pay the full mortgage payment each month into the future as well as also being able to pay in addition To the regular payment, the amount necessary to pay the Chapter 13 Trustee all of the delinquent amounts within 60 months.
Answer Applies to: California
Replied: 6/8/2011
Indianapolis Bankruptcy Law Office of Eric C. Lewis
Indianapolis Bankruptcy Law Office of Eric C. Lewis | Eric Lewis
In your case, as explained, it sounds like a short sale would be your best, and first, option.
Answer Applies to: Indiana
Replied: 6/8/2011
    Bankruptcy Law Office of Robert Weed
    Bankruptcy Law Office of Robert Weed | Robert Weed
    That depends on your goals in life, the age of your kids, how much you like the house and a bunch of other factors. A good bankruptcy lawyer will spend an hour or so with you going over all that.
    Answer Applies to: Virginia
    Replied: 6/8/2011
    Janet A. Lawson Bankruptcy Attorney
    Janet A. Lawson Bankruptcy Attorney | Janet Lawson
    Only you can decide if the house is worth the effort to file a Chapter 13. If you decide to let it go.... stay in it until they foreclose. Where else can you live for free?
    Answer Applies to: California
    Replied: 6/7/2011
    Carballo Law Offices
    Carballo Law Offices | Tony E. Carballo
    After not having paid the mortgage for three years your credit must already be trashed. If you can do a short sale then you might be able to avoid bankruptcy. In some states, as in California, if you have only one mortgage then the foreclosure (trustee's sale) would eliminate any debt related to the mortgage. The bank must accept whatever it gets at the trustee's sale and cannot come after you for the balance (the deficiency). You mention getting enough money from the sale to pay off the loan. By definition a short sale is a sale where you do not get enough to pay off the loan. That is why it is called a short sale. That means the bank has to accept whatever the buyer is willing to pay and write off the balance owed on the mortgage. In a Chapter 13 you would have to pay the arrearage (three years of mortgage payments plus penalties and bank fees) over a period of a maximum of five years. The plan payment would probably be very big. You would also have to pay most of the attorney's fee and Trustee's commission in the plan. Unless your income is very high you might not be able to afford the mortgage payments, plan payments and living expenses. You cannot get a Chapter 13 plan confirmed (approved) by the Court unless you can demonstrate you can afford all those payments. Most banks will not afford a deed in lieu of foreclosure but if your bank will accept one then that might be the best choice if you cannot afford the house. You should consult with a bankruptcy lawyer to evaluate your personal situation and advice you properly as to which is the best option.
    Answer Applies to: California
    Replied: 6/8/2011
    Greifendorff Law Offices, PC
    Greifendorff Law Offices, PC | Christine Wilton
    Only you can decide whether filing bankruptcy would be 'worth it.' I can tell you that bankruptcy will stop a foreclosure and help you keep your home. I can tell you that your credit will likely improve after filing bankruptcy, contrary to popular opinion. As always, the decision is yours alone to make.
    Answer Applies to: California
    Replied: 6/7/2011
    Ursula G. Barrios Law
    Ursula G. Barrios Law | Guillermo Machado
    Your credit is already "trashed" with 3 years of late payments on your house. Can short sale or save in 13 if feasible and truly interested in saving home. Otherwise consider a 7.
    Answer Applies to: California
    Replied: 6/7/2011
    Bankruptcy Law office of Bill Rubendall
    Bankruptcy Law office of Bill Rubendall | William M. Rubendall
    You should make a decision after having weighed the advantages and disadvantages. First you must decide whether you want to keep your home. Second you need to decide whether you can afford keeping it. If you file Chapter 13 you will have to make the ongoing regular payments and a payment to the plan that pays off the arrears in three to five years. Since you have so little unsecured debt you might want to consider foreclosure. However, consult with your accountant about possible negative tax consequences. Credit-wise a sale or short sale would be better that a a foreclosure. A foreclosure or a bankruptcy would have similar impact on credit, particularly if you plan to buy a home in the future.
    Answer Applies to: California
    Replied: 6/7/2011
    Ashman Law Office
    Ashman Law Office | Glen Edward Ashman
    No one can answer this question online. It requires a review of your finances. Short sales rarely work and there are many pitfalls. Deeds in lieu almost never work because lenders refuse to take them. Sit down with a bankruptcy lawyer to see if Chapter 13 (or 7) is appropriate. You will also learn about loan mods in and out of bankruptcy, and programs like cash for keys.
    Answer Applies to: Georgia
    Replied: 6/8/2011
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