Should I Short Sale My House Or Declare Bankruptcy?
By Orfelia M Mayor, Esq.
You bought your home during the real estate rush a few years ago and now your dream home has turned into an upside down nightmare with adjustable interest rates. The rates are going up while the value of your home is going in the opposite direction. In addition, credit card debt is mounting since credit card companies have been on a mission to raise interest rates to the 25 – 29% level. What’s a consumer to do?
Unfortunately, there’s not much one can do to stem the tide of today’s economic climate. The banks are going to do what they are going to…the credit card companies are going to raise their rates (regardless of your credit history) and to top it off, you never know if your job will be there tomorrow.
When it comes to your home, you do have a couple of options. If you cannot afford the payments on your home anymore, you can try to have the loan modified to a more affordable payment under the HAMP legislation. Banks are moving very slowly in this area and although they are reducing interest rates, they are not forgiving principle and closing the gap between your home’s value and what is owed.
Another option is to short sell your home to a buyer. A short sale is when you sell the house for less than what is owed on it. This requires the bank’s approval since they are taking a loss on the original mortgage. This process usually takes months and is not always successful. The difference between what you owed on the house and what it was sold for is called a deficiency. Banks will issue you a 1099 Misc for the amount of deficiency and you will have to declare it as income on your taxes. Yes, you will have to pay income tax on that amount. The good news is that until 2012, deficiencies on primary mortgages (your homestead home) are forgiven through legislation that President Bush signed. After 2012, you will have to pay taxes on deficiencies unless the law is extended by Congress.
In a bankruptcy, you can choose to surrender the home and all of your personal liability for the loan amount is forgiven. That includes any potential deficiency between what was owed and what the bank ends up selling the house for. There’s no haggling with the bank, no approvals to wait for – no doubts as to what the future will bring. Additionally, filing bankruptcy will eliminate all of your other unsecured debt so you can truly get a fresh start and a good night’s sleep.
If you’d like more information on bankruptcy options for eliminating debt, please visit http://www.mayorbankruptcy.com
Orfelia M. Mayor, Esq.
Bankruptcy Law Firm of Orfelia M. Mayor, P.A.
Fort Lauderdale, Florida
Credit Card Management Services, Inc. D.b.a. Debthelper.com
1325 N Congress Ave Ste 201
West Palm Beach, FL 33401
P: 1-800-920-2262 – F: 1-866-561-2622