Should I Go Bankrupt versus Short Sale or Foreclosure?

First, let me get the legal portion out of the way-----I am a Realtor, not an Attorney, or a CPA, so before you do anything, I highly advise legal and financial assisstance from qualified people!

Now that's done, let's get back to the topic at hand.  I am going to provide information that may or may not help you.  I will be talking in general terms and everybody's circumstances are different, so what I tell you will hopefully give you some answers or at least point you toward finding the right answer for your circumstances.

Bankruptcy

People think that a bankruptcy will cleanse them of their debts.  That is a myth.  Here is why.  Yes, it's true, that a Chapter 7 Bankruptcy will release a debtor of all debts.  The problem is that most the bankruptcy laws were changed in 2005.  This law makes it much harder to file a Chapter 7 bankruptcy.  Now the judges have to steer debtors towards a Chapter 13.

What does a Chapter 13 bankruptcy mean?  It means that a debtor will have to repay part (if not all) of their debts.  In addition, the debtor has their finances managed by the bankruptcy trustee.  And, the debtor has to pay that trustee!

AND, I have heard that 96% of the people that go into Chapter 13 are not able to complete the plan.  Ask the attorney what happens if you can't make the payments the way the court sets it up.  As I understand it, you are right back where you started with the crediters calling again.
Most big companies don't have the stomach to do the hard work of collecting money. That is why they farm that hard work out to a collection agency. What does the collection agency do? They just call the person over and over again.

Very few collection agencies are going to do what is actually necessary to force the borrower to pay. And that is file a lawsuit. If they ever do file a lawsuit, the court system is so backed up that it's hard to get a judgment. And what good does a judgment do them?

Statistics show that only 20% of all judgments ever get collected. Why do I tell you this? Because so many short sale sellers instead declare bankruptcy. They don't want to waste time on a short sale. So they don't do one.

Just remember, a bankruptcy stays on your credit for 7 years.  And I have heard of people buying another home 1 year after a short sale.  As far as foreclosure goes, Fannie Mae & Freddie Mac (government agencies that own about 50% of all mortgages) are talking 3-5 years before they will loan you money.  We aren't sure of the actual number yet.

Again, as I started out this article, please get with an attorney and a tax person so you know legally what to expect.  Should you have more questions, don't hesitate to leave a response below.