Can a Short Sale After Bankruptcy Hurt My Credit?
Challenges with the economy, job loss, lay offs and a slow recovery has forced many homeowners to file for bankruptcy protection to help stop the financial bleeding of a reduced income household.
Bankruptcy can be a difficult and emotionally taxing experience. When a family’s income is reduced, the credit card debt can slowly stack up until it gets to a point where you can’t keep up with all of your credit card payments and your mortgage payments.
Using Bankruptcy to Preserve Homeownership
It doesn’t happen over night, but the debs slowly build up until one day you realize that minimum credit card payments on top of mortgage payment are simply too much to keep up with and something’s gotta give.
Faced with being stuck between a financial rock and a hard place, it is not uncommon to choose to eliminate the debt through the bankruptcy and continue to make the mortgage payments and preserve the family home.
Eliminating the demand of maxed out credit cards can buy you time and money to pay toward the mortgage, but if financial challenges continue you may be faced with making even harder choices about your home.
Reaffirmation of Mortgage Debt
A reaffirmation agreement excludes the debt from bankruptcy protection
As a homeowner, one of the toughest decisions facing hardship victims is how to preserve your home. Simply including your mortgage in the bankruptcy doesn’t mean that you are free and clear, the mortgage payments still need to be made if you wish to continue to live in the home.
Reaffirming the mortgage means that it is excluded from bankruptcy protection. Reaffirmation means that if you default on the mortgage, or have to short sale the home in the future
In many cases, entering into bankruptcy can help open negotiations with your lender to discuss loan modification or other payment relief options. But lenders haven’t always played nice, many times will not respond to modification requests, and simply ignore reaffirmation requests and include the mortgage in the bankruptcy.
Credit Consequences of Short Sale after Bankruptcy
When default seems inevitable, homeowners have to make tough choices. Defaulting on a mortgage after it has been included in bankruptcy will not hurt your credit score.
Defaulting on a mortgage after it has been included in bankruptcy will not hurt your credit score
However, when it comes to buying another home in the future, choosing foreclosure or short sale can carry different recovery periods and cause significant differences in the amount of time you will have to wait before being able to boomerang back into a home.
Timelines to buy after a bankruptcy or short sale run concurrently, meaning that if you filed for bankruptcy, and did a short sale at the same time, the waiting periods would begin simultaneously and the most restrictive (longest waiting period) would determine the date that you could buy again.
If you have questions about short sale or foreclosure after a bankruptcy, you can ask a question in the comments section below.