Bankruptcy & Short Sale Deficiency

A short sale is a common solution for homeowners who are struggling with debt, job loss, medical problems, or any other financial difficulty that makes it hard to keep up with mortgage payments. A short sale is an alternative to foreclosure, but it can lead to a deficiency judgment against you for the remaining balance as well as tax consequences.

Chapter 13 or Chapter 7 bankruptcy is a solution to discharge any deficiency you may have from a short sale.

Understanding Short Sales in Nevada

A short sale allows you to sell your home for less than your remaining mortgage balance with your lender’s permission. Your lender agrees to release the lien on the property in exchange for the proceeds of the sale. This lien release does not mean you are released from paying the remaining balance, however.

A short sale that is “short” the total debt amount leaves a difference between the sale price and mortgage amount known as the deficiency. In Nevada, your lender has the right to seek a personal judgment against you for this deficiency. The laws that prohibit deficiency judgments after foreclosure do not apply to short sales and the consequences can be serious. Once the lender gets a judgment, it can collect the amount through wage garnishment or levying your bank account.

Avoiding a Deficiency Judgment

There are a few ways to avoid paying back the deficiency, including negotiating a waiver of the lender’s right to seek a deficiency judgment or making a settlement offer to your lender for a smaller amount. If these options fail, bankruptcy can be used to eliminate the debt completely.

You may have done a short sale to avoid the credit damage of a short sale and bankruptcy will affect your credit, but it can be a good option if you have other debts you cannot afford to pay. Filing for bankruptcy will put an immediate end to any bank account levies and wage garnishment and gives you a fresh start financially by discharging the deficiency and most other debts.

Contact a Bankruptcy Attorney in Las Vegas

Are you contemplating a short sale or bankruptcy? Is your lender seeking a judgment against you or garnishing your wages? A Nevada bankruptcy lawyer at Vegas BK can walk you through your options and help you decide if bankruptcy is in your best interest.