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Bankruptcy Protection & Short Selling Your Home

Today’s economy has many in financial distress, facing mounting bills, and wondering about their options. Many have heard about some of the legal options available to help, including things like filing for bankruptcy or short selling a house. Confusion often reigns regarding whether either or both of these options are appropriate in individual cases. Our New Jersey real estate attorneys counsel that the decision depends on a multitude of individual factors and that the answer often hinges on the extent of a family’s overall debt outside of the home.

Short Sales

A short sale is the process in which a homeowner is behind on mortgage payments and the lender is willing to accept less than the debt owed on the home through a sale to a new buyer. One of the most common reasons  people chose to take part in the short sale of their home is to ward off a foreclosure from the lender. It is possible  that by short selling your home, as opposed to allowing the bank to foreclose, the negative impact to your credit score may be less severe.


Bankruptcy is essentially a legally declared inability to pay creditors. In most cases it is initiated by an individual when they are overwhelmed by their debts. The purpose of declaring bankruptcy is to give the individual a fresh start while allowing creditors to be repaid as much as possible in an orderly manner.

In general, there are two types of bankruptcy filings for individuals. “Liquidation” (i.e. Chapter 7) involves selling all non-exempt assets with the proceeds used to satisfy creditor claims. Our Burlington County real estate  attorneys advise that, under certain circumstances, this can be a great option.

Conversely, “reorganization” is an alternative process that allows individuals to keep their assets while structuring a whole or partial repayment of creditors. The most common reorganization bankruptcy for individuals is Chapter 13. In Chapter 13, an individual keeps assets but is required to devote a portion of their income to repaying creditors over a period of years. The payment amount and time period depend on the individual’s property value  and income. “Secured creditors” like mortgage lenders often receive greater payments in reorganization  bankruptcies.

Bankruptcy & Short Sales

Pursuing a short sale on your home and weighing bankruptcy are not necessary either/or propositions. Most importantly, while a short sale is related specifically to mortgages and real property, bankruptcy involves the entirety of one’s debt burden, including credit card balances and car loans. Many people wish to obtain financial relief with minimal long-term damage. Often that means pursuing a short sale first, while trying to avoid bankruptcy, because bankruptcies may come with more drastic long-term financial complications.

In addition, lenders often have much more to gain by supporting short sales. When a borrower files for bankruptcy any collection/foreclosure processes must be temporarily halted. However, by accepting a short sale, the lender can avoids the costly foreclosure process.

Contact Our Lawyers for Help

When considering options like a short sale and bankruptcy, there are many complicated issues that could affect your decision. It is imperative to speak with a licensed attorney who can advise you of what’s in your best interest. Call one of our Moorestown real estate attorneys today to get help right away in Burlington County or nearby New Jersey communities.