Potential short sales to bankruptcy?

July 31st, 2010 by Eric
Categories: News

People think that a bankruptcy will cleanse them of their debts. That is a myth. Here is why. Yes, it’s true, that a Chapter 7 Bankruptcy will release a debtor of all debts. The problem is that most of the bankruptcy laws were changed in 2005. This law makes it much harder to file a Chapter 7 bankruptcy.

Now the judges have to steer debtors towards a Chapter 13. What does a Chapter 13 bankruptcy mean? It means that a debtor will have to repay part (if not all) of their debts. In addition, the debtor has their finances managed by the bankruptcy trustee. And, the debtor has to pay that trustee!

If a person just stops paying their debts, then they can actually pay less money than they would with a Chapter 13 bankruptcy. Let’s face it. The people who handle bad debt are so disorganized. Yes, it’s very similar to how a “servicer” handles a third party loan. Most big companies don’t have the stomach to do the hard work of collecting money. That is why they farm that hard work out to a collection agency. What does the collection agency do? They just call the person over and over again.

Very few collection agencies are going to do what is actually necessary to force the borrower to pay. And that is file a lawsuit. If they ever do file a lawsuit, the court system is so backed up that it’s hard to get a judgment. And what good does a judgment do them?

Statistics show that only 20% of all judgments ever get collected. Why do I tell you this? Because so many short sale sellers instead declare bankruptcy. They don’t want to waste time on a short sale. So they don’t do one. They think that bankruptcy will get rid of their problems. In fact, it could just make their problems worse. Educate your customers. Tell them the truth. They are usually much better off short selling.

They can stop paying their unwanted debts, ignore the debt collectors, and in 2-3 years be back on track. They will be much better off then, versus a bankruptcy which stays on your credit for 7 years.

Tags: bank owned, foreclosure, reo, short sale

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