A recent email to a client follows, and should be a fair warning to have clients consult with bankruptcy counsel before execution of short sale purchase and sale documents:
- As a result of the short sale of your home before you file bankruptcy you will no longer have the contractually due amount owing to your first and second.
- As a result, when we calculate your eligibility for Chapter 7 relief (rather than Chapter 13 relief) we will not be able to deduct from your Annualized Monthly Income those monthly payments.
- As a further result, if your Annualized Monthly Income (calculated from the prior 6 months of payment advices) exceeds the Median Income for your 4 member household (currently $79,971) you will not "pass" the Means Test, meaning that you will be forced into a 5 year Chapter 13 repayment plan; and to add insult to injury you will only be repaying your debts without the benefit of saving your home.
- Rent does not reduce your Annualized Monthly Income for purposes of calculating the Means Test.
- Remember that the short sale does not monetarily benefit you (you will still have liability for the deficiency owing on the second), and yet the inability to claim the contractually due amounts (even if not being paid) will cause you greater harm because you cannot gain a Chapter 7 discharge, but must wait out a Chapter 13 discharge.
- The short sale, although delayed, can happen any time after you receive your Chapter 7 discharge. This would be a win-win for you and the Realtor.
Louis J. Esbin, Esq.
Law Offices of Louis J. Esbin
27201 Tourney Road, Suite 122, Valencia, CA 91355-1857
Tel: 661-254-5050 | Fax: 661-254-5252 | Web: www.LouisEsbin.com
Certified Bankruptcy Specialist - State Bar of California Board of Legal Specialization.