The SINGLE best reason for people in Southern Colorado to get advice from a Colorado Springs bankruptcy lawyer before selling their home is to save money, possibly a great deal of money. I’ll tell you ten ways to do so—three today and then the rest in my next couple of posts.
1. Avoiding judgment liens: If some creditor has sued you in the past, that creditor likely has a judgment against you. You might not realize or remember if this has happened. If a judgment has been entered against you, the creditor can then record a Memorandum of the judgement with the County Clerk and Recorder which results in a lien against your home. You may want to check the El Paso County Clerk and Recorder’s website to see if there is a judgment or two recorded against your property.
As a Colorado Springs bankruptcy lawyer, I’ve often conducted judgment searches for my clients and have found that the lien amount is often significantly more than the amount my clients originally owed to the creditor due to the addition of attorneys fees, court costs and interest. The sad news is that most of the time, that judgment lien has to be paid in full before the house can sell.
If the judgment is paid out of the proceeds of the house sale, this reduces the amount you’ll receive. If there aren’t enough “proceeds” to cover the judgment, you’ll either have to pay the full judgment yourself or at least some discounted amount to get the creditor to release the lien. And if the creditor won’t settle for less than they’re owed, you might not be able to complete the sale.
In contrast, your bankruptcy lawyer can file either a Chapter 7 or 13 case and get rid of that judgment lien and write off the underlying debt, allowing you to sell the home without paying anything on it.
2. Stripping second and other junior mortgages: Chapter 13 may allow you to “strip” your second (or third) mortgage from the title of your home by changing it from a secured debt to an unsecured one. I have done this for many clients, even some who would otherwise be eligible to file a Chapter 7. They found that they were better off filing a Chapter 13 and making a small monthly payment to the Chapter 13 Trustee for three years rather than making a larger payment to the second mortgage holder for years and years and years. This can e done as long as the value (what it would sell for in today’s poor real estate market) is less than the amount owed on the first mortgage. As a result, the junior mortgage balances are thrown into the same pot as the rest of your other regular unsecured debts—all of your other debts like credit cards and medical bills that have no collateral attached to them.
When this happens, depending on your situation, you often don’t have to pay anything more into your Chapter 13 Plan. And even if you do have to pay something more because of the stripped “junior” mortgage, almost always you only have to pay pennies on the dollar. And your home becomes completely free and clear of that mortgage.
3. Buying time for a better offer: A home sold in a hurry is seldom going to get you the best price. A basic rule of home sales is that the maximum price is received through maximum exposure. If you feel under serious time pressure to sell because of creditor problems, the extra time provided by filing either a Chapter 7 or 13 case could give you the additional market exposure your home needs.
No question–filing a bankruptcy can in some respects complicate the sale of your house, and there many situations when a bankruptcy filing may not help you reach your goals. But in the right situations the advantage of getting more time on the market far outweighs any potential disadvantage.
In my next post I’ll give you more ways that bankruptcy can give you huge advantages involving your home. Some of these can totally change whether or not you should sell your home, and if so, when you should do so. If you live in Colorado Springs or elsewhere in Southern Colorado and would like to discuss your situation, with no obligation, please fell free to call me at 719 227-8787.