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Terry L.
Terry L., Attorney
Category: Bankruptcy Law
Satisfied Customers: 2897
Experience:  Better Business Bureau. 18yrs bankruptcy experience. Chicago Bar Assoc. American Bankruptcy Institute member.
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My wife and I are filing Bankruptcy and including the house.

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My wife and I are filing Bankruptcy and including the house. From what I have seen online, having a forclosure and bankruptcy on your record is the worse possible showing on your credit report. Ive asked our lawyer about short saleing, but he says not to. I'm not sure I understand why. The house we are giving up is my mothers old house. So its not what my wife and I long to be in, But we would like to buy again within that 3 year period post bankruptcy.Is letting the house go into forclosure while filing Bankruptcy our only option? When they say the house is "included" in your Bankruptcy. The debt gets discharged but forclosure is still recorded?
Hi and thanks for your question.
To summarize, the bankruptcy discharges the debt for the mortgage, the foreclosure transfers title back to the lender. Generally, when you short sell,the lender agrees to accept less to close the deal. Any forgiveness of debt is taxable to you as income, so usually not a good idea in most cases to short sell before bankruptcy since the debt is discharged once you file, but not the tax liability. The other option (if you only have 1 mortgage) is to see if the bank will offer a deed in lieu of foreclosure, where you basically just sign the home back over to the lender, avoiding foreclosure. Our clients are bouncing back and many lenders I've spoken to, say they want people to be out of bankruptcy for at least a year, preferably two, before they will qualify for most loans. There is nothing written regarding this, but it seems to be the rule of thumb with most lenders.
Thanks for your question, and good luck.
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