Bankruptcy and Short Sale

There are many questions regarding bankruptcy and the short sale process. All of those questions need to be formally answered by a qualified attorney which I am not. What I will try to do here is give you an overview of the possibilites so that you have an idea of actions that you can take to help yourself in the event of a short sale. It is MANDATORY to speak with a qualified attorney before doing anything. These issues can be very complex and the law seems to change monthly so you need the competent advice of someone that knows the details.

One question I always hear is - Can you use the filing of a bankruptcy to delay a foreclosure? Well, yes, you probably can. There is a big IF involved however. The bankruptcy needs to be filed in good faith which means that you are not just filing to avoid foreclosure but that you do actually have other financial problems and cannot meet your debts.

Why would you want to file bankruptcy? Well, you may need more time to try to sell your property or you may actually want to try to keep your property long term.

So, once you file bankruptcy an automatic stay is triggered which prevents anyone, including the lender, from doing anything without the trustees approval. That's great! The lender can't foreclose right? Well, that's true to an extent, but it also makes it difficult for you to sell your property because nothing can be done with it without the bankruptcy trustees approval. In a lot of cases, after you file bankruptcy, the lender will file a motion for relief of stay. The relief of stay, if approved by the court, will allow the lender to once again take action on the property. So, if they desire, they can begin the foreclosure process again. Many times the lender will wait 30 days before filing the relief of stay because they want to see if the bankruptcy will be approved. If it is dismissed by the court then the lender will not need a relief of stay to continue foreclosure. If the court does not dismiss the bankruptcy then the lender will file the relief of stay and about 30 days later will most likely get control of the property back.

As you can see, you may be able to delay foreclosure for a couple months or more. Once the relief of stay is granted to the lender you may be able to once again try to sell your home via short sale.

Is it all worth the time and effort if you're going to lose your home anyway? Possibly. If you file before the foreclosure actually takes place and then are able to short sell the property during or just after the delay then it's possible you will not have a foreclosure on your credit report. It is a must to get a good attorney to make sure everything is done properly.


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Bankruptcy and Short Sale