BANKRUPTCY
File Bankruptcy to Get Breathing Room & Relief from Your Debts!
The decision to file bankruptcy to address your debts is one that should not be taken without the guidance of a local bankruptcy lawyer. We can help you examine how filing bankruptcy – in either the form of Chapter 7 or Chapter 13 bankruptcy – may be able to provide you with the financial relief you deserve.
Are you wondering if you should file bankruptcy to help address your pesky debts? Are you unsure whether you should file Chapter 7 or Chapter 13 bankruptcy? Are you a bit nervous about the possibility of having to file bankruptcy?
If any of these thoughts sound all too familiar in your mind, don’t worry – you’re not alone and you have more power than you think.
this year. In the 12 months ending on June 30, 2008, Chapter 13 bankruptcy filings increased 17 percent from the year before, rising from 294,693 Chapter 13 filings to 344,421 Chapter 13 filings. More than 1.1 million consumers are expected to file bankruptcy in 2008.
If you are to file bankruptcy, you should know that when you file bankruptcy, an automatic stay will be entered by your bankruptcy trustee. What is the automatic stay and what does it mean to you if you file bankruptcy? Basically, the automatic stay is a court order prohibiting further collection actions against you after you file bankruptcy. This means that creditors can no longer pursue collection actions against you after your bankruptcy filing, and that you and your family may finally get the piece of mind you deserve as all late-night phone calls from harassing creditors must stop.
A decision to file bankruptcy should not be made without consulting a bankruptcy lawyer in your area. Having a bankruptcy attorney on your side is a smart way to learn how filing bankruptcy may specifically help you, what type of bankruptcy may make more sense to your situation, and what you need to do if you are to file bankruptcy.
The U.S. Bankruptcy Code may provide you with relief if you file bankruptcy via one of two consumer protections:
Chapter 7 bankruptcy, which is used to excuse (discharge) your credit cards and other unsecured debts, and give you a fresh financial start; and Chapter 13 bankruptcy, which serves the purpose of stopping foreclosure and repossession, allowing you to keep your home and car, and providing you with the breathing room you need to catch up on these debts over time. As you will see below, a lot of Americans have decided to file bankruptcy in the past months in order to break free from their debts.
Filing Bankruptcy Has Helped Others; Could You Achieve Similar Relief?
More and more people have had to file bankruptcy in the wake of unemployment, medical bills and the overall problems with the economy. Take a look at the following statistics from the American Bankruptcy Institute to understand just how many people have recently made the decision to file bankruptcy to attain a fresh financial start.
Consumer bankruptcy filings are on the rise once again – there were 266,767 bankruptcy filings in the second quarter of 2008 as compared to 236,892 filings in the first quarter of this year. Consumers who had to file bankruptcy under Chapter 7 of the U.S. Bankruptcy Code accounted for 67.61 percent of all consumer bankruptcy filings in the second quarter of 2008. In comparison, Chapter 7 bankruptcy filings accounted for 64.37 percent of all consumer bankruptcy filings in the first quarter of
LEARN ABOUT FORECLOSURE
Short Sale Magic - Will the Homeowners Owe Money?
Posted on May 12, 2008 by realestateinvestordotcom
The homeowners need full disclosure concerning all of their foreclosure questions surrounding your negotiations with the bank. They want to know what will happen before, during and after the short sale. Don’t let them believe that short sale magic will make their mortgage debt go away entirely.
In a typical short sale deal, the investor negotiates a purchase price that is lower than the amount of the homeowner’s mortgage on the property. For example, the homeowner may still owe $100,000 on the property but you negotiate with the bank to purchase that property for $70,000. This gives you a discount of $30,000 on that property, but the bank and the homeowners still need to deal with that remaining debt.
After the short sale, the bank has two options for dealing with the remainder of the mortgage debt. Both of these options do mean that the homeowner owes money on the short sale, at least on paper. The bank can seek to sue the homeowner for that remaining debt by seeking a foreclosure deficiency judgment or the bank can send out a 1099 form calling that $30,000 income for the homeowner.
The Foreclosure Deficiency Judgment
It’s important to provide foreclosure information to the homeowners about these pre-foreclosure investing deals. It helps make sure; he or she is well prepared for a possible foreclosure deficiency judgment.
A bank can file for a deficiency judgment against the homeowners after completing the short sale deal. Both parties must show up in court and for the homeowners, it’s very much like being sued. If the judgment is awarded the court declares that the homeowners still officially owes the bank the remaining $30,000.
If you work your short sale magic on the bank during negotiations you can get them to opt not to file for a foreclosure deficiency judgment. When investing in foreclosures, you’ll spend a lot of time putting together packets that show evidence of the homeowners’ financial hardship. Most banks don’t want to kick the homeowners while they’re down. If you can prove financial hardship was the reason the homeowners couldn’t make their mortgage payment, the bank usually agrees not to file for a deficiency judgment.
You can also get the bank to sign a waiver showing that they’ll send out a 1099 form instead of filing for the judgment. This will certainly help put the homeowners’ minds at ease. Most times, however, they will not put anything in writing but will make a verbal promise not to go after the homeowner.
Dealing with the Deficiency Judgment
It may be possible for the homeowner to work a little short sale magic on the bank to deal with the remainder of their debt. If a foreclosure deficiency judgment is filed against the homeowner, the homeowner may also be able to negotiate another short sale deal with the bank on that deficiency. So, the bank would accept a partial payment on that deficiency and call it ‘payment in full’ on the homeowner’s credit.
The homeowner may also be able to file bankruptcy and have that deficiency judgment cleaned from their credit history. However, the homeowner must be made aware that they’ll have a bankruptcy listed on their credit history for the next 7 years instead.
The 1099 Form and the IRS
Most of the time in short sale investing; you’ll be able to get the bank to send out the 1099 form, instead of filing for a foreclosure deficiency judgment. The amount on the 1099 Form has to be reported by the homeowners to the IRS as income. So, naturally the homeowners will need to pay taxes on that income listed by the 1099 Form. In the case of the previous example, the homeowners would need to pay income taxes on $30,000.
When working in real estate investing you should always recommend to the homeowner that he or she speak with an accountant. However, you can give them a few short sale tips, so they know basically what they’ll be able to do about the 1099 form.
Many times the homeowners have been living in enough financial hardship that they won’t have to pay taxes on their 1099 Form. They may qualify for an exemption based on the sale of their property or their hardship.
The homeowner probably hasn’t earned enough income in the year prior to the sale of their home for the 1099 Form to have a significant impact on their taxes. Assuming that the IRS requires 10% of all income, the homeowner would only owe about $3,000 on that remaining debt of $30,000. That’s fairly light payment on a defaulted mortgage of $100,000.
Plus, the homeowners may never receive the 1099 form from the bank. This isn’t something to tell them to count on. Yet, often the banks are so busy and tied up with red tape that the 1099 form is never sent out.
When you complete that short sale deal with the bank, the homeowners will end up being responsible for the remaining debt on their mortgage. This responsibility doesn’t necessarily involve paying back that amount to the bank, but the homeowner may end up with a foreclosure deficiency judgment on their credit or they could pay taxes on that remainder. Often, you’ll find that the homeowner wishes to continue dealing with you, even after learning this vital foreclosure information. If they do nothing and won’t work with you then they can guarantee that they’ll have some sort recourse from the bank.
One of the common misconceptions about real estate foreclosure is that the homeowner, once defaulted and foreclosed, no longer has any financial obligation to the mortgage lender. Since the house has been taken away and put up for auction, it stands to reason that the homeowners wouldn't be a factor any longer, but this is often not the case. In fact, many homeowners who go through foreclosure are startled to find that they still owe money on the house.
The reason for this is that the mortgage lender almost always takes a fall at foreclosure. They secure the house as collateral for the loan on which you defaulted, but they are usually unable to sell the home for fair market value. In fact, it is common to see a foreclosed house selling for 70% less than what it is worth, which is sometimes a great deal less than the balance of the loan with the original borrowers. So yes, you could owe money after foreclosure.
For example, let's say that you borrowed $80,000 to purchase a $100,000 home. Over the course of the next five years, you pay off an additional $20,000, which leaves a balance of $60,000. Then you lose your job and fail to pay your mortgage for three months straight, and the bank decides to initiate foreclosure on your house. However, they only manage to sell the property for $30,000, meaning they are negative $30,000 on their original investment.
Subsequent to foreclosure, the bank can ask a judge for a deficiency judgment, which is a monetary judgment against the prior homeowner for the deficit. This is the same thing as any judgment won in civil court, with the original homeowners as the defendants and the mortgage lender as the plaintiff. The judgment can often be enforced by garnishing wages or placing liens against other property owned, and can be a real hassle in the long run.
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