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Short Sale vs. Bankruptcy filing

Some lenders today will require that you at least try for a short sale before they will consider a Deed In Lieu Of Foreclosure.

Some people are in favor of doing a short sale because –

  • It’s not a foreclosure.
  • It saves your credit rating.
  • You don’t owe the bank anything afterwards.
  • There is no visible sign of loss.

While it is true that a short sale is not a foreclosure, here are the realities:

  • A short sale hurts your credit nearly as bad as a foreclosure.
  • It’s not guaranteed that the lender will waive any deficiency.
  • Everyone knows anyway.
  • You get nothing out of the sale – Unless your lender allows for some moving expense, and the only ones who are making any money on this deal are the real estate agents and the lawyers.
  • Short sales take a ton of time and are a major hassle.

A short sale may not get you much that a bankruptcy can’t solve. A Chapter 13 bankruptcy might solve the entire problem by letting you wipe off the second mortgage/line of credit while paying the credit cards nothing and getting caught up on your first mortgage.

Failing that, a Chapter 7 bankruptcy will absolve you of liability on the mortgages/line of credit and the credit cards and get you a fresh start.

Finally, a bankruptcy may actually help your credit rating a bit; since you can’t file bankruptcy again for a while (8 years), your ability to pay is pay in the future is far more important that what happened to you in the recent past.

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