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Short Sale
Bankruptcy may mark the end of a challenging chapter, but it also signals the beginning of a fresh opportunity for financial empowerment.
Your Path to Financial Freedom in Michigan Starts!
Start Fresh, Take Control of Your Money, and Welcome a New Chapter in Your Life.- Are you struggling with serious debt?
- Are you unable to pay your mortgage payments?
- Are you facing the possibility of foreclosure?
- Are you considering a short sale of your home?
Many people think that a short sale might be their only choice when facing serious debt and difficulties paying the mortgage. However, there are many pitfalls involved with short sales, and there might be better options available.
Our lawyers at USADebt have a wealth of experience to help our clients understand all of their options, including how a short sale of real estate works and whether it is the right choice. Our team of attorneys includes board-certified consumer bankruptcy specialists.
What is a Short Sale?
A short sale is a real estate transaction in which the proceeds from the sale fall short of the outstanding mortgage balance on a property. In simpler terms, it occurs when a homeowner sells their property for less than the amount they owe on the mortgage. The lender agrees to the sale, even though the proceeds won’t fully cover the outstanding loan.
Here’s a step-by-step breakdown of how a short sale typically works:
Short sales are often pursued as an alternative to foreclosure, as they can be less damaging to the homeowner’s credit. However, they require approval from the lender, and the process can be complex.
Alternatives to a Short Sale
Here are detailed explanations of some alternatives to a short sale:
Chapter 7 Bankruptcy:
Chapter 7 bankruptcy, often referred to as “liquidation” bankruptcy, allows individuals to discharge qualifying unsecured debts. It involves the liquidation of non-exempt assets to satisfy creditors.
This option provides a fresh start by wiping out certain debts entirely. In many cases, individuals can keep essential assets through exemptions.
Chapter 13 Bankruptcy:
Chapter 13 bankruptcy is a reorganization plan where individuals with a regular income create a structured repayment plan to address their debts over three to five years.
It allows individuals to retain their property while catching up on missed payments. It’s particularly useful for those with a stable income seeking to avoid a short sale.
Debt Negotiation and Settlement:
Negotiating with creditors for debt settlement involves reaching an agreement to pay less than the total amount owed, often in a lump sum or structured payments.
This approach can result in reduced debt amounts, providing relief without the need for a short sale. It is particularly useful for unsecured debts.
Loan Modification:
Loan modification involves negotiating with your lender to modify the terms of your mortgage, such as interest rates or the loan term, to make it more manageable.
It allows homeowners to keep their property while making the mortgage more affordable. It’s a suitable option for those facing temporary financial hardship.
Forbearance Agreement:
A forbearance agreement is a temporary arrangement with the lender that allows homeowners to reduce or suspend mortgage payments for a defined period.
It provides short-term relief, making it suitable for those experiencing temporary financial difficulties and aiming to avoid a short sale.
Sell and Rent Back:
Some companies offer a “sell and rent back” option where homeowners sell their property to an investor and then rent it back.
This allows individuals to access equity without moving, but it’s essential to carefully review the terms and potential drawbacks.
Refinancing:
Refinancing involves replacing an existing mortgage with a new one, often with more favorable terms.
It can lower monthly payments or adjust the loan term, providing relief for homeowners facing financial challenges.
When considering alternatives to a short sale, it’s important to consult with our bankruptcy attorneys, or other professionals to assess the best strategy based on individual circumstances. Each option has its merits and considerations, and a tailored approach is key to achieving the most favorable outcome for the individual’s financial well-being.
Understanding The Pitfalls Of Short Sales
A short sale is when a mortgage company gives a homeowner permission to sell the house at a reduced price, without paying the full amount owed. While it sounds like a preferable arrangement, especially for those facing foreclosure, short sales can actually be highly complex and troublesome for the homeowner.
Some of the pitfalls of short sales include:
- The mortgage company requires the homeowner to go through multiple steps with no real promise that the short sale will be approved.
- Short sales have a possible tax liability. The debtor may be required to pay income tax on the deficiency. A large tax bill from the IRS may result from a short sale in many cases.
- The debtor may be responsible to make up the difference between the unpaid mortgage and the price the house is sold for. The end result may be that there is a very large debt still owed on the home after the short sale is completed. Bankruptcy may be a better option either before or after a short sale.
For these and other similar reasons, many people find that bankruptcy is the better option for mortgage debt relief.
The Benefits Of Bankruptcy
As per Statista’s data, Michigan witnessed a decline in business bankruptcy filings in 2022, with 220 cases reported. [1]
Bankruptcy is a court procedure that either cancels most debt completely chapter 7, or reorganizes it into a creditor repayment plan chapter 13. Either chapter of bankruptcy places an automatic stay or injunction on all creditor actions, including foreclosure. Whether you actually keep your house depends on your financial situation and the chapter of bankruptcy you file.
Chapter 7 cancels debt and generally results in debtors giving up their house if the debtor cannot make the payments and wants to cancel the debt. In other cases, a Chapter 7 debtor may keep the house and reaffirm the debt or seek to modify the loan with the lender. If the home is surrendered, the debt is canceled. This allows the debtors to walk away from the payments without the negative repercussions of a short sale.
In a Chapter 13, debtors consolidate debt into a single affordable payment. The reorganization often reduces debt enough that the debtor can afford the mortgage on the house and can make up past due payments. Debtors can keep their home so long as they continue to make the payments to the Chapter 13 plan.
Our Expertise in Bankruptcy in Michigan
Handling bankruptcy requires a good grasp of the law, and at USADebt, we’re here to make it simpler as youradvocates for financial relief.
Why our help matters:
We Know
Our Stuff
01
Our team focuses solely on bankruptcy law, keeping up with changes. This helps us give you accurate advice that fits your situation.
Guidance
All the Way
02
Whether you’re thinking about Chapter 7 or Chapter 13, we guide you through the whole process. From the first talk to representing you in court, we make sure you understand and feel supported.
Solutions Just
for You
03
Every bankruptcy case is different, and we get that. Our expertise helps us create solutions just for you. We work closely with you to understand your money situation and offer plans that fit your needs.
We Stand Up
for You
01
We’re not just lawyers; we’re your champions throughout the bankruptcy process. Our expertise helps us handle legal stuff, tackle challenges, and aim for the best outcomes for your financial situation.
Help After
Bankruptcy
02
Our support doesn’t end with filing. We help you rebuild credit, plan your finances, and give tips to take control of your money future.
Choosing a legal partner with know-how in bankruptcy is key to a successful financial recovery. At our law firm, we’re committed to excellence, and our deep understanding of bankruptcy law makes us reliable partners on your journey to a better financial future.
FAQs on Short Sale in Michigan
Can I Pursue a Short Sale If I'm Considering Filing for Bankruptcy?
Yes, you can. A short sale is a viable option for homeowners facing financial challenges, and it can be explored both independently and in conjunction with bankruptcy. It’s important to consult with our bankruptcy law firm to understand how a short sale aligns with your overall financial strategy.
How Does a Short Sale Affect my Bankruptcy Filing?
A short sale can impact your bankruptcy proceedings, especially if it involves the sale of assets. The sale proceeds and any deficiency balance may need to be addressed within the bankruptcy framework. Coordination between your real estate agent and bankruptcy attorney is essential for a seamless process.
Will a Short Sale Eliminate All my Mortgage Debt?
In most cases, a short sale may not eliminate all mortgage debt. While the sale proceeds are used to pay off a portion of the mortgage, there may be a remaining balance, known as a deficiency. The treatment of this deficiency in bankruptcy depends on the specific circumstances and applicable laws.
Can I Pursue a Short Sale During an Active Bankruptcy Case?
Yes, it’s possible. However, initiating a short sale during an active bankruptcy requires court approval. We can guide you through the process, ensuring compliance with bankruptcy laws and court procedures.
Will a Short Sale Impact My Credit Score, and How Does it Compare to Foreclosure?
Yes, a short sale can impact your credit score, but typically less severely than a foreclosure. While both involve the sale of the property for less than the outstanding mortgage, a short sale is generally considered less damaging to credit. The extent of the impact depends on individual credit history and the reporting practices of creditors.
Can I Negotiate a Short Sale With My Lender After Filing for Bankruptcy?
Negotiating a short sale with your lender after filing for bankruptcy is possible but requires careful consideration. It involves collaboration between your bankruptcy attorney and real estate agent. The terms of the short sale need to align with bankruptcy laws, and any proceeds should be handled within the bankruptcy proceedings.