If you are in a household where you cannot afford to pay, or you do not want to continue to assume a debt that far exceeds your home equity, then you will undoubtedly consider two alternatives to get short or seek bankruptcy. On the surface, selling short appears to be a better choice because it has less impact on your credit report, but there are other factors that need to be considered.
The first bankruptcy will likely include all your existing debt, not just the money owed to the mortgage lender. Although this may have a higher impact on your credit score, it will also have a greater impact on your monthly obligations and this will have a positive effect on your daily life as you will get more money. Another thing that many people do not realize is that depending on how short the sales structure is, there may still be money owed to the bank. Even if the bank accepts the offer provided by the buyer, if your short-selling contract is not otherwise specified, the bank can still choose the difference between your obligation to them and the amount paid by the buyer.
In other words, a short sale may leave you home, but it won't get you out of all the debt associated with the house, which is important for most people to look for short-term sales and defeat the entire purpose. To consider these factors, if you decide to try to sell your house short of seeking bankruptcy, you should ensure that the contract specifies that the balance will not be paid by you.
Orignal From: Short selling and bankruptcy
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