Which is Better? A Bankruptcy or a Short Sale

Bankruptcy is a legal process that may stop a foreclosure and allow you to reorganize your debt and keep assets. However, what really may happen, is the bankruptcy only delays the foreclosure — your smaller monthly expenses will be removed, but you still have to shoulder the burden of that big mortgage every month and pay additional towards the arrears. If you are not able to maintain your mortgage payments after bankruptcy, the house will foreclose anyway. That’s why a short sale may be the most prudent way to turn your financial life around and restore your peace of mind.

Bankruptcy Basics

As an individual, there are two kinds of bankruptcy chapters available to you under federal law: Chapter 7 and Chapter 13

Chapter 7

A court-appointed trustee collects your assets, reduces them to cash, and makes distributions to creditors. Because there is little or no property in chapter 7 filings, they are often referred to as “no-asset cases.” You are then discharged of any further responsibility for past debt.

Chapter 13

Unlike Chapter 7, all of your assets are not liquidated in Chapter 13 bankruptcy. Chapter 13 bankruptcy provides time to catch up on past due balances while keeping your property. Typically, a repayment plan lasts between 36 and 60 months and you will be required to make monthly mortgage payments plus additional sums every month to catch up on the arrears.

A Short Sale May Make Better Sense — Financially and Emotionally

The “B” word, Bankruptcy, and the “F” word, Foreclosure, stir up all kinds of personal embarrassment and lasting financial stigma including:

Lasting black marks on your financial records — you may not be able to borrow a minimum of 7 years

Background checks by prospective employers will reveal your past

Your privacy is damaged when legal notices appear in your hometown paper

Your ability to get insurance is affected — coverage automatically costs more

A Short Sale Brings Immediate Peace of Mind

You settle your debt

You can rebuild your credit and pay down your debts starting immediately

Financial freedom and a fresh start is a reality

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