Question File BK before or after foreclosure?

[RK05]

I found a few post on this by searching but would like some advice/opinions regarding my example.

My girlfriend and I currently have a "short sale" offer on her house. The bank has had the offer now for over 5 weeks. Yesterday we called to find out what was going on and found out they lost her file. This will be the third time we sent all of her info as well as the house contract to them. On top of this I saw the clerks web site getting ready to send out notice of foreclosure.

Besides the house she has a credit card ($900) that was used for overdraft purposes. I don't know why or how that worked. Plus a car lease bill for ($5k) which is another story (no longer has the car). Plus medical payment that are for $1K.

Her credit score is 400.

We don't want the house!

Is there any advantages/disadvantages to filing for BK before the house is foreclosed on?

I know that there is a chance the bank will not go after her for the loss money if foreclosed but they have years for that right?

[BassBoy]

Either way doesn't really matter much. If the home is foreclosed before filing, you would probably want to file BK before the bank is able to get a deficency judgement against the debtor. If the home is not is foreclosure before filing BK, the stay will keep the any foreclosure from happening until you are in default (usually 90 days past due) and the bank lifts the stay in order to proceed with foreclosure. This can take a little while to accomplish......about 2 months because of the judicial processes of lifting the stay.

[RK05]

She stopped paying on the house last August 2007 so if she files BK they would be able to stop the stay quickly, correct?

I thought there was a law that goes until 12/31/09 that allows forgiveness of debt from home sales that is considered income by the IRS as long as it was her main home?

From searching this site it would seem the best option for her (credit wise) if she would Not file BK would be the "short sale". Since the other debt she has is not much especially if they will work with her to pay it off. Although, if the "short sale" goes through she wouldn't be able to file BK7 correct?

[BassBoy]

Yes, the BK would stop the foreclosure dead in its tracks on the date she filed.

Yes, there is a new law about forgiveness of debt......I replied to that in your other thread.

IMO, a short sale could be the best option. Also, and IMO, her debt is quite small and she may be able to work it out over the next few years. Remember, BK is the last resort.

[RK05]

This short sale is just taking forever and the bank (5/3) is taking their sweet time and loosing her paperwork. I know a BK is the last resort but with her credit already wrecked would it really make it any worse?

We are planning on buying a house together and getting married in the near future but this is not helping. We want to save money to buy a house but if she doesn't file and works on paying off this other debt she still has bad credit with the short sale and less money to save. We would still have to wait two years before she could be listed on a loan to buy a house. In that same time if she would file BK she could be saving that money instead.

Decision, decision....

[BassBoy]

Yep, Decisions, decisions......it's a tough one to make.

Her credit is pretty bad right now (400 - based on your other posts) and she is going to have to do some serious rebuilding in order to boost her credit rating for future loans and credit. In some cases, BK actually helps the person's credit because the large amount of debt is gone.......more disposable income. It's still a hit to your credit worthiness though.

I would assume her score may not drop much more (350 is the minimum), so I don't feel she wouldn't be in worse shape after a BK as far as her score is concerned. Keep in mind though, that lenders look at past credit history, so are there are bunch of late payments, collections, charge-offs and etc, these can squash your credit rating for years to come.

[RK05]

[thaynes]

I don't agree that bankruptcy is the last resort. If it makes the best business sense, then go for it.

I filed after our foreclosure. In California, they can't come after you for deficentcy if it was your primary residence, at least on the first mortgage. And sure enough, my credit report has $0 listed under the first, but it has $60,000 listed for the HELOC. Even thought it says 0$ for the first, I went ahead and listed it just in case, thanks to some advice from bkparalegal. And it seems to be the correct advise.

[RK05]

We could let the house get foreclosed on and not file but then she risk having the bank send a 1099. That may not be a big deal considering she could get forgivin for that because of the current law that goes until 12/09. The down side of that is if the bank can't get rid of the house by then. There is a major foundation crack which was probably one reason why no one wanted the house even at the low price.

The foreclosure would be off her credit before the BK but I think it would take longer to fix her credit going that route.

[imaloser]

may i ask what state you're in ? the laws vary from state to state. does your girlfriend have any equity in the house ? do you know what the market value is ? how many loans and what are the balances ? do you know if it's a freddie mac backed loan ? if so you will be able to stay in the house for ten months, basically rent-free, until foreclosure.

also, i believe in the state of california, if you have an 80/20 loan and they were both used to purchase the house, there is no deficiency judgement. cash-out refis and helocs are a different story. most often, they sell the debt to a bottom feeder for pennies on the dollar and come after you for the defieciency.

[RK05]

We are in Ohio. There is no equity in the house. The house was apprasied at $85K probably due to foundation crack and other work that needs to be done. She bought the house for $119K but with late fees from Not paying since last July ect the pay off is $144K.

It is a freddie backed loan (no 2nd morgt) but one we don't want the house and two the sherif sale should be set within the month or two.

[imaloser]

you should be fine then - i would sit tight and wait for an eviction notice - that way she can save money (or the two of you if you live together) and go ahead and file bk surrendering the house and you'll be fine.

[RK05]

Update:
Sherif sale is set for 10/2. She has a schedule date to file on 10/14 but we are going to talk to one more lawyer this Thursday 9/4. The lawyer we have to file just doesn't "feel" right.