Bankruptcy Follow-up: Short Sales Post Bankruptcy

Originally Published by Berlin Patten on October 12, 2012

With the proliferation of bankruptcy filings over the last several years, we have received a number of inquiries regarding the completion of a short sale following a bankruptcy.  Yes, there are lawyers who may suggest that a homeowner who has been discharged from a bankruptcy (and therefore discharged from their debt) need not consider a short sale post bankruptcy.  We disagree.  Most debtors fail to recognize that following a successful Chapter 7 bankruptcy, the debtor may still own the property if the bankruptcy trustee does not take it and dispose of it in the bankruptcy. And as such, from the moment the debtor is discharged from the bankruptcy, their financial liability for the ownership of the property commences once again. 
 
In other words, after a bankruptcy, the debtor is once again responsible for, without limitation, property taxes, homeowners/condo fees, property maintenance, code enforcement issues, permit violations/penalties, and/or personal injury to individuals who enter the property. As such, it is still wise, in our opinion, for a debtor who has been discharged from bankruptcy, but still owns the property post discharge, to dispose of the property as quickly as possible to reduce such exposure to the extent possible.  A short sale is often times the best way to accomplish this objective rather than waiting for a lender to complete the foreclosure process, which could take a substantial period of time.
 
Note: Remember that any foreclosure/short sale results in an additional adverse credit reporting event. As such, another advantage to expediting the sale of the property through a short sale post bankruptcy is that the adverse reporting as a result of the short sale will occur sooner, thus allowing the debtor to restore his/her credit sooner.
 
Please contact your lawyer should you have any questions.

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