Mortgage Law, Mortgage Modification, and Foreclosure: How Bankruptcy Can Help With Foreclosure Part III
Good Day Readers! Sorry for the delay in blogging; new priorities will ensure more frequent updates. So, we were talking about how Bankruptcy can help with foreclosure on your home. We went into Chapter 13 a little, so let's take a look at Chapter 7 Bankruptcy. As we have discussed earlier Chapter 7 discharges all debts, including your mortgage.
Unfortunately many situations may require that you’ll have to give up your home no matter what. In that case, filing for Chapter 7 bankruptcy will at least stall the sale and give you two or three more months to work things out with your lender. See prior post in this series regarding publication timing and bankruptcy. It will also help you save up some money during the process and cancel debt secured by your home. You should be able to save money, since the second you decide you are going to file bankruptcy you should stop paying your bills.
During a Chapter 7 bankruptcy, you can live in your home for free during at least some of the months while your bankruptcy is pending—and perhaps several more after your case is closed. You can then use that money to help secure new shelter. We usually recommend that our clients stay in their home for free until they are required to vacate by law. Imagine how much money you could save with no house payment at all for several months!
Thanks to a new law, you no longer face tax liability for losses your mortgage or home-improvement lender incurs as a result of your default, whether you file for bankruptcy or not. This new law applies through the 2012 tax year and is discussed below. However, the new tax law doesn’t shield you from tax liability for losses the lender incurs after the foreclosure sale if:
1)The loan is not a mortgage or was not used for home improvements (such as a home equity loan used to pay for a car or vacation); or
2) The mortgage or home equity loan is secured by property other than your principal residence (for example, a vacation home or rental property).
This is where Chapter 7 bankruptcy helps. It will exempt you from tax liability on losses the lender incurs if you default on these other loans.
