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Chapter 13 and Short Sale

Betsalel Cohen
UpdatedSep 22, 2023
Key Takeaways:
  • Consult with an attorney if you cannot afford your Chapter 13 plan.
  • You may qualify for a Chapter 7 if you cannot afford a Chapter 13.
I want to cancel my Chapter 13 bankruptcy and pursue a short sale. Smart idea?

Hello Bill, I filed Chapter 13 Bankruptcy and still cannot pay my lender so I told the trustee that I will surrender my property. Now I decided to short sale it - Please advise if my decision is right.

My first and last words in this are to recommend you to consult with an attorney experienced in bankruptcy.

If you cannot afford your monthly bankruptcy payments, I assume your income has decreased significantly since you filed for Chapter 13 bankruptcy protection. If that is the case, then you may be able to convert your Chapter 13 case to a Chapter 7, which may allow you to discharge your debts, depending on the type of debt you owe, and therefore end your monthly Chapter 13 payments. Speak with your attorney to determine if a conversion from Chapter 13 to Chapter 7 is advisable, or even possible, in your situation.

Unlike a Chapter 13 bankruptcy, which requires you to make monthly payments to your creditors, a Chapter 7 generally discharges most unsecured debts, so if your debt is mostly comprised of credit card or other unsecured debt, a bankruptcy conversion may be able to help you. However, if the debt in question is secured debt, tax debt, or delinquent student loans, you may not be able to discharge your debt under a Chapter 7, so a conversion may not make sense.

What is your liability for the mortgage if you convert to a Chapter 7? What is your liability for the mortgage if you surrender the property under a Chapter 13? What is your liability for the deficiency balance if you pursue a short sale? I cannot answer those questions based on the information provided. Consult with your bankruptcy attorney before signing the short sale contract.

To learn more about bankruptcy, and the different types of bankruptcy available to consumers, I encourage you to visit the Bankruptcy Resource Center.

I hope this information helps you Find. Learn & Save.



Struggling with debt?

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q2 2023 was $17.06 trillion. Housing debt totaled $12.354 trillion and non-housing debt was $4.709 trillion.

According to data gathered by from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 8% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.

Collection and delinquency rates vary by state. For example, in Vermont, 16% have student loan debt. Of those holding student loan debt, 5% are in default. Auto/retail loan delinquency rate is 2%.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.