I’m often asked by clients about short sales. As I talked about in my blog, Why Short Sales Usually are a Bad Idea, there are a lot of potential problems with short sales.
But while they’re usually a bad idea if you won’t be filing, they almost always are bad if you will file. Why?
First, a Chapter 7 discharges the underlying mortgage debt, as well your personal obligation for your second mortgages, HELOCs, equity lines, etc.) This means that you don’t need to do a short sale to get out from under the crushing weight of an upside down mortgage.
Second, if you’re in bankruptcy, you can’t do a short sale without Court approval. This often means that you have to pay your lawyer more money to do something that has no financial benefit for you.
Finally, even though you’re in bankruptcy, the lender may still issue a 1099-C. This means that you will need to file a Form 982 to avoid having to pay income taxes on the forgiven debt.
Are there exceptions to this rule? Sure. If you’re a realtor and getting a commission on the short sale, it might be worth it!
About Brett Weiss, Maryland Bankruptcy Attorney
Brett Weiss has been practicing in the areas of bankruptcy for the past 26 years. Mr. Weiss has received international media attention in connection with the cases he had handled. He has been interviewed by Barbara Walters on The View, appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. An honors graduate and award-winning National Moot Court Competition national finalist at the University of Maryland School of Law, Mr. Weiss served as law clerk to the Chief Administrative Judge of the Anne Arundel County Circuit Court before entering into private practice. Regularly appearing before the United States Bankruptcy Court, state and federal courts throughout the State of Maryland and the District of Columbia, Mr. Weiss is a strong advocate for his clients.
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