Your Home's Short Sale Or A Chapter 7 Bankruptcy
Often Solve The Same Problem; Rarely A Need For Both
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
If your home is under water, meaning that its value is less than the amount owed on the mortgage - and if you don't want to file bankruptcy - then you might consider a short sale.
For example, if the home's value is $150,000, and the amount owed on the mortgage is $180,000, then you would have to pay the $30,000 loss at closing or get the mortgage lender to agree to a short sale to forgive the deficiency.
On the other hand, if you file a Chapter 7 Bankruptcy and the house sold for $150,000, the bankruptcy would discharge the $30,000 debt and you would have no obligation to pay it. So you don't have to try to get the lender to approve a short sale because you are completely off the hook. This is true unless you decide to reaffirm the debt in bankruptcy, which means you agree to be legally bound by the terms of the mortgage and keep paying on the debt.
But if you don't reaffirm the mortgage, you owe nothing further to the bank, and your mortgage debt is completely erased by the bankruptcy.
So getting your lender to agree to a short sale of your home - or filing a Chapter 7 Bankruptcy are usually alternative solutions and are almost never used in tandem. If you have questions, please don't hesitate to call me. 312-969-0730.