Filing Chapter 7 is the most common type of bankruptcy which will relieve debt and help get a needed fresh start. An individual or a joint debtor may file under Chapter 7 of the U.S. Bankruptcy Code. This process involves the liquidation of assets and the distribution of proceeds from this liquidation to creditors. Chapter 7 bankruptcy offers immediate and complete relief of outstanding debts.
Chapter 13 is most commonly used to avoid foreclosure when the homeowner wants to keep the home and provides a plan to pay back the money that the homeowner owes. In this way, Chapter 13 is known more as a reorganization than a total liquidation.
A short sale is a sale of real estate in which the proceeds from selling the property will be less than the mortgage balance and liens on the property and the property owner cannot afford to repay the liens’ full amounts. The bank agrees to release their lien on the real estate and accept less than the amount owed on the debt. Any unpaid balance owed to the creditors is known as a deficiency. Short sale agreements do not necessarily release borrowers from their obligations to repay and eficiencies of the loans, unless specifically agreed to between the parties.A short sale is often used as an alternative to foreclosure because it mitigates additional fees and costs to both the creditor and borrower. While credit is also typically damaged much less than from a foreclosure, both often result in a negative credit report against the property owner.