Will the Short Sale of Your Home Damage Your Credit Rating?

If you are behind on your mortgage and facing potential foreclosure proceedings, is it better to dispose of your property through a short sale (where you sell your home for the market value, even though it’s less than the amount remaining on the mortgage) or to go through the foreclosure process? Is there any advantage to using a short sale to address your financial challenges?

Short Sale vs. Foreclosure—Any Benefit?

According to most industry experts, the impact of a short sale on your credit will be almost identical to that of a foreclosure, assuming that you have chosen to short sell your home because you are behind on your mortgage. Most credit reporting agencies reduce your score by a specific number of points for certain events, including:

  • A payment more than 30 days late
  • A payment more than 90 days late
  • A foreclosure, short sale or deed-in-lieu of foreclosure
  • A bankruptcy filing

Industry representatives also say that it takes about the same amount of time—around 7 years—for a person to restore his or her credit rating after a foreclosure or short sale. Ironically, the higher your credit score before the short sale or foreclosure, the longer it will typically take to reestablish that high credit rating.

According to a study by the Fair Isaac Corporation (FICO), the industry leader in software to calculate credit scores, people who short sell a home have a higher tendency to default on other credit obligations. One report showed that approximately half of all people who sell short default on another obligation within two years. Because of this data, credit reporting agencies tend to treat short sales like foreclosures.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Should You File a Joint Bankruptcy Petition if You Are Married?

Under the bankruptcy law, if you are married, you can choose to file a joint bankruptcy petition, or you can file individually. Before you file, you need to take a careful look at your situation and what you want to accomplish, so that you take the measures that are in your best interests. Here are the key questions to ask:

How much property do you own jointly and how much do you own separately?

  • In a joint bankruptcy filing, all of your assets are subject to the bankruptcy proceeding. If you want to keep assets in a Chapter 7 filing, you will need to look at the exemptions that are available and determine if you have enough to cover the property you want to keep. If you or your spouse individually own a significant amount of non-exempt property, Bankruptcy may only be a good solution for one of you.

What debts are you trying to discharge?

  • When you file a joint bankruptcy petition, you can rid yourself of all dischargeable debts either of you owe, or that you owe jointly. If you have little or no joint debt, and you or your spouse has significant individual debt, an individual filing will probably be to your benefit.

What is your individual credit rating?

  • A joint bankruptcy will affect both of your credit scores, but an individual bankruptcy filing will only reflect on the credit rating of the person filing the petition. If you have strong credit and the debts are primarily those of your spouse, you may be best served by having your spouse file independently.

It is important to understand that, even if you file independent of your spouse, you must report your spouse’s income if you share the same household. The court will use this information when determining whether you qualify to permanently discharge debt under Chapter 7 or Chapter 13.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.