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Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2815
Experience:  Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.
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After Hurricane Katrina, we moved to Florida and received an

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After Hurricane Katrina, we moved to Florida and received an SBA Disaster Loan for $230K. Of that $200K was for the new home and $30K was for replacing content (furniture, curtains, etc.). The home we purchased was $385K and we received an additional loan from Wells Fargo for the difference ($185k) and they were placed in the first position with SBA second.
We can no longer afford this home due to several factors (loss of job, economy, etc.) and are selling it with a short sale ($220k). The home appraised for $400K in 2006 and is currently valued at $225K.
After all is said and done, the Wells Fargo loan will be satisfied but we will still owe the federal government over $200K. SBA said that they will turn it over to the US Treasury and we would need to negotiate with them. (They have already kept our 2009 tax refund of about $5K.)
What are our best options? Is the SBA loan dischargeable in bankruptcy? Would we do better foreclosing on the home instead of the short sale?
Thanks in advance! We've lost one home (and community from Katrina) and now we are losing another. My wife and kids are as nervous about this as i am. Any assistance you could give us would be appreciated.
I.M. Drowning, Florida
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  Terry L. replied 6 years ago.
IF you file for chapter 7 and surrender the debt, then most likely the debt will be discharged thru the case, absent any fraud on your part. once the chapter 7 discharges, the lien will stay with the property until foreclosed upon. If the lien is recorded on the property, you most likely will not be able to short sell, as they must approve it too. Any amount forgiven in debt would be a taxable event to you, which would survive a bankruptcy case.
I suggest you meet with a local bankruptcy attorney to review the matter and advise you on the issues here. Your real estate attorney should work with your bankruptcy attorney. Normally, if you are definitely going to file for bankruptcy, I would recommend filing first before you short sell, to avoid any taxable issues from popping up in the future. Most bankruptcy attorneys offer free consultations, so I would definitely go that route first to confirm. Best of luck. THanks
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