Bankruptcy vs Short Sale: Which Is The Better Option?
As a financial consultant, I often get asked about the differences between bankruptcy and short sale. Both are options for homeowners who find themselves in financial distress and unable to make their mortgage payments. While they may seem similar, they have distinct differences that can affect your financial future.
Understanding Bankruptcy and Short Sale
Bankruptcy is a legal process in which a debtor declares that he or she cannot pay their debts. There are two types of bankruptcy: Chapter 7 and Chapter 13. In Chapter 7 bankruptcy, the debtor’s assets are sold to pay off their debts. In Chapter 13 bankruptcy, the debtor creates a repayment plan to pay off their debts over a period of time. Bankruptcy can affect your credit score for up to 10 years.
- Provides a fresh start for individuals who are unable to pay their debts. It can also stop foreclosure proceedings and creditor collection actions.
- Eliminates certain debts, such as credit card and medical debts.
- Expensive and time-consuming
- Negatively impacts your credit score for up to 10 years, making it difficult to obtain credit in the future
- Some debts not be eligible for discharge in bankruptcy, such as student loans and tax debts
A short sale is an agreement between a homeowner and their lender to sell the property for less than what is owed on the mortgage. The lender agrees to accept the proceeds of the sale as payment in full and forgives the remaining balance. While a short sale may negatively impact your credit score, it is less severe than bankruptcy and typically only stays on your credit report for up to 7 years.
Short Sale Pros
- Relieve you of your mortgage debt without the stigma of bankruptcy
- Less expensive than bankruptcy and can often be completed more quickly.
- Has less of an impact on your credit score than bankruptcy.
Short Sale Cons
- You may owe taxes on the forgiven debt.
- The lender may require you to pay the difference between the sale price and the amount owed on the mortgage.
Bankruptcy vs Short Sale – Which is the Better Option for Your Financial Future?
Deciding between bankruptcy and a short sale can be a difficult decision. It is important to consider your financial situation, the impact on your credit score, and any tax implications. If you have a significant amount of debt that you cannot repay, bankruptcy may be the better option. If you have manageable debt but can no longer afford your mortgage payments, a short sale may be the better option.
Short Sale Process in Missouri
If you decide that a short sale is the better option for you, it is important to understand the process. In Missouri, the short sale process typically involves the following steps:
- Contact your lender and request a short sale packet.
- Complete the packet and provide all required information, including financial statements, tax returns, and pay stubs.
- Find a reputable company that buys houses in St. Louis, Missouri.
- Accept an offer from a buyer and submit it to your lender for approval.
- Close the sale and transfer ownership of the property to the buyer.
Cash Home Sale – An Alternative to Short Sale
If a short sale is not an option for you, a cash home sale may be an alternative. A cash home sale is a transaction in which a buyer purchases your property for cash, often at a discounted price. This can be a quick and easy way to sell your house and avoid foreclosure or bankruptcy.
Tips for Selling Your House Quickly
If you decide to sell your house through a short sale or cash home sale, there are several tips you can follow to sell your house fast. For one, price it competitively. Research the market and price your house accordingly. Additionally, make sure your house is clean and well-maintained. This can help attract potential buyers and increase the value of your property.
Deciding between bankruptcy and a short sale can be a difficult decision. It is important to consider your financial situation, the impact on your credit score, and any tax implications. If you have significant debt that you cannot repay, bankruptcy may be the better option.
If you have manageable debt but can no longer afford your mortgage payments, a short sale may be the better option. Alternatively, a cash home sale may be an alternative to a short sale. Whatever option you choose, be sure to follow these tips to sell your house quickly and avoid financial distress.
Sell Your House Fast in St. Louis, Missouri
If you need to sell your house fast but don’t want the hassle of a traditional home sale, contact Klamen Real Estate Buyers. We buy houses as-is. No repairs are needed. Avoid closing costs and realtor commissions. Close in as little as seven days. Call 314-721-6800 and get a fast cash offer from our local home buyers in Missouri.