Often times those seeking to file for bankruptcy are also looking to short sell their home to avoid a foreclosure going on their credit report. This makes sense, however individuals must be careful and plan ahead with pre-bankruptcy planning to make sure everything goes along smoothly. This applies whether you plan to file for chapter 7 or chapter 13 bankruptcy.
The timing of a short sale is very important because after a debtor files for bankruptcy, all property, including the home become part of the bankruptcy estate which must be administered by a bankruptcy trustee for the benefit of your creditors. Even if the property has no equity or value to you, a bankruptcy trustee must release it from the estate or else a motion to compel release may have to be filed with the court which would order that a trustee release the property. Further most debtors cases are no asset cases so a trustee may file a report of no distribution shortly after your meeting of creditors which is in about 30 days from your filing date.
If you already have been working on a short sale or have a buyer lined up, then it would be in your best interest to complete the short sale prior to filing so that the bankruptcy automatic stay will not affect your sale. With that said, if you have not invested any serious time and effort into a short sale, most of the time, your bankruptcy trustee will attempt to short sell your home with his own real estate agent and on your behalf. Therefore, depending on where you are in the short sale process should determine whether to short sell prior to or after filing for bankruptcy.
Finally you should be aware that if the government does not extent the right for homeowners to receive tax relief after completing a short sale, you may be liable for paying taxes on the debt that is forgiven after completing a short sale.
If you have additional questions please call Symmes Law Group at 206-682-7975