Skip to main content

Bankruptcy vs. Foreclosure+Debt Settlement

Irvine, CA |

I have 2 rental properties in TX that foreclosed in 6/2010. I have $25K in CC debt. My home in Northern CA has foreclosure sale date of 2/20/11. I owe $350K on this home, but it's now worth $250K. I'm applying for a loan modification w/ Wells Fargo for this home. My salary is approx. $60K per year. I need advice on what is best for me at this time. Should I:

(A) Move forward w/ the loan mod and pay off my cc debt
(B) Move forward with the loan mod and do debt settlement on the cc debt
(C) Short sale this home and pay off my cc debt
(D) Short sale the home and do debt settlement
(E) File for bankruptcy and be done with all the above

Any advice is greatly appreciated.

+ Read More

Attorney answers 3

Best Answer

Believe it or not, your situation is fairly normal. A lot of my advice depends on whether you have any liability for deficiencies on your Texas rental properties. I do not know Texas law but I think a deficiency is a good possiblity. If you do, bankruptcy may be your best option to get rid of the Texas rental property debt and your credit card debt. Also, as long as you own your home, you are much more likely to qualify for a Chapter 7 bankruptcy. You should meet with a good bankruptcy attorney for a strategy session to see what your best option is. When someone does file bankruptcy, I usually recommend filing bankruptcy first, trying for a loan modification after you file for bankruptcy (yes, it can proceed even during bankrutpcy) and then if the loan modification does not work and you cannot afford your mortgage, trying a short sale. A short sale will make it easier than a foreclosure to buy a house in the future. Fannie Mae and Freddie Mac have underwriting guidelines on their websites. These guidelines change often but they have consistently allowed someone to get a new home loan sooner after a short sale than after a foreclosure. The most important thing is for you to make a decision while you still own your home and you should allow enough time to prepare a bankruptcy petition. With a sale date of 2/20/11, you are smart to be thinking of these questions but I would encourage you to meet with an attorney as soon as possible to give yourself the time to pursue your best strategy.

Please note that although this answer may provide information concerning potential legal issues, it is not a substitute for legal advice from qualified counsel. You should consult an attorney for individual advice regarding your own situation. Answering this question does not create any attorney-client relationship between you and Kelly Zinser, Shareholder at Olenicoff & Zinser, PC in Irvine, California. For more information on bankruptcy, please see our website.


Your circumstances are far too complicated for a simple answer. You will need to sit down with a very experienced bankruptcy attorney to review your entire situation. Expect to pay a fee for this advice, as the amount of time to complete the analysis of this situation will be substantial.

You may not qualify for bankruptcy and you may have other issues that affect the decision on how to proceed.

Hope this perspective helps!


I agree with Attorney Bunce. Your situation is far too complicated for anyone on Avvo to advise you what you should do. Moreover, as she indicates, you might not even qualify to file for bankruptcy.

Since the foreclosure sale is coming up in February, you need to immediately hire (and pay for) a bankruptcy attorney to analyze your situation and to explain the options to you.

Can't find what you're looking for?

Post a free question on our public forum.

Ask a Question

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer