Thinking about filing before foreclosure

[jimbo367]

My son has a few judgements that are about to garnishee his income soon.

He really can't afford his mortgage any longer also.

I think he should file now to free up his paycheck.

I think it would also benefit his filing of his tax refund for 2012.

My primary question is say he gets thru the chapter 7 in 3-4 months then the foreclosure starts, he can oppose it in NY for at least 3-4 years.

But if during the foreclosure he doesn't work out a modification and has to walk away from his house.

What happens to his credit?

I assume it will say discharged in Chap 7

your opinion


.

[Fleischman]

Filing while he is still obligated on his mortgage allows for a deduction on the means test, which may make a Chapter 7 easier - or a Chapter 13 less costly in terms of the Plan payment.

If your son goes into foreclosure post-discharge, he can still defend the case and/or seek modification of the loan and/or refinance.

[jimbo367]

What would the credit report say about the foreclosure post discharge?

If a mod couldn't be done and he saves money for a down payment on a new house in say 3-4 years, will he get a mortgage do think.

[NoMoreCards]

I really dont think he would be able to stay in the home 3-4 years while fighting foreclosure.
The credit report should say disharged in bankruptcy.

[jimbo367]

In New York even if you don't contest foreclosure the average time to process thru the Courts is one of the longest in the US, about 970 days.

The banks take 1 year plus to start foreclosures here.

So 4 years is a good average, I have a guy I work with just get served he stopped paying over two ago.

So the credit report will show any foreclosure as discharged, that helps credit wise.

.

[Charlie777]

At discharge he no longer owes the mortgage. The bank still has its security interest and can foreclose.

Since your son "can't pay the mortgage" he will ultimately be foreclosed on. He can live in the home rent free until foreclosure occurs, but I'm not sure he can "fight it". The time he can stay depends on the slowness of the bank and the New York court system.

Depending on local practice, the Trustee may seek part or all of his tax refund.

[jimbo367]

He can fight the foreclosure, that we know for sure.
You're entitled to oppose any legal action as matter of right.

I thought if he files before 12/31/12 the trustee can only look to the last taxable year which would be 2011.

From 11 USC 521 (Debtor's Duties)..

11 USC 521(e)(2)(A)(i) not later than 7 days before the date first set for the first meeting of creditors, to the trustee a copy of the Federal income tax return required under applicable law (or at the election of the debtor, a transcript of such return) for the most recent tax year ending immediately before the commencement of the case and for which a Federal income tax return was filed

[keepmine]

He can fight the foreclosure, that we know for sure.
You're entitled to oppose any legal action as matter of right.

I thought if he files before 12/31/12 the trustee can only look to the last taxable year which would be 2011.

It does not matter when he files his 2012 return. If the refund can't be exempted, it becomes part of the bk estate and the trustee will snaggle it.
If it can't be exempted, he needs to hold off on filing until he spends it down.
Your sons best bet is to interview a few bk lawyers and get all of his options explained. Most will give a free or low cost initial consultation.

[jimbo367]

I know he go to a few lawyers, but getting some opinions here will help ask the right questions.

So keep them coming please.

[HHM]

Jimbo, you are confusing two issues.

The one you raise has to do with the requirement to provide a copy of your the "tax return."

A tax refund is a different issue. However, a tax refund is earned pro-rata over the course of a tax year. It is only paid when the person files the tax return. So, pretty much starting around September/October, chapter 7 trustees in states with no exemption to cover a tax refund hold cases open until the debtor files the tax return the following year.

To the OP, credit is really the least of your concern.

[alo]

I have had three attorneys mention that if foreclosure is a possibility, to hold off until after filing/closing either Ch 7 or 13. Then, you can hire one of them to defend your foreclosure/modification. So, this must be one route.

I wondered about the credit issue afterwards, too. But more so, I wondered if the Ch13 trustee would request a higher payment if they found that you were not paying a mortgage. Especially if you were saving money for your next home (as the OP is suggesting to his son).

[HHM]

Realize, All defend means is delay. You need to decide if it is worth it to spend the money on an attorney to delay the inevitable.

[Snax]

It's also worth noting that regardless of what is on the credit report or when Ch. 7 is officially discharged, foreclosure is public record. With most lenders, the earliest a new mortgage can be acquired is 2 years (VA guarantee), and could be as long as 3 or more years - from the time the foreclosure is completed! So worst case scenario for somebody who actually wants to purchase again ASAP, 23 months post discharge, the lender files the notice of default and ends up dragging the foreclosure out say two more years, leaving you with an additional 2-3 years to wait before you can get another mortgage. I.e., 6-7 years!

That said, I think it is worth retaining the property for as long as needed post-discharge to qualify for the underwriters by actually making payments if necessary to forestall foreclosure beyond that waiting period post-discharge. That cuts the window down without the hit on the public record that the underwriters may be hard pressed to overlook.

As it is for us right now at 19 months post-discharge, with no NOD, our mortgage broker friend is telling us to come see her April 1st if the bank still has not started foreclosure, which will be exactly two years out. (I love the irony of that date too BTW.)

I think we have some extra help in that we are so far underwater on the lien, that having us still living in the house and taking care of the property keeps them from having to write-off more loss. I look at us as property managers at this point, able to be fired, but not without significant notice. ;)

[tobee43]

My son has a few judgements that are about to garnishee his income soon.

He really can't afford his mortgage any longer also.

I think he should file now to free up his paycheck.

I think it would also benefit his filing of his tax refund for 2012.

My primary question is say he gets thru the chapter 7 in 3-4 months then the foreclosure starts, he can oppose it in NY for at least 3-4 years.

But if during the foreclosure he doesn't work out a modification and has to walk away from his house.

What happens to his credit?

I assume it will say discharged in Chap 7

your opinion


.

to answer you original question directly.....most of the time as long as the mortgage was listed and discharged the foreclosure that happens after the fact will not or should not show up on the credit report as it was and has been hopefully reported IIB. now, if it does you can fight it with the credit co for reporting it. also....a BK stays on for 10 years and then the foreclosure stays on for 7 so really if it happens within three years it's really not going to mean a hill of beans credit wise. it's down and going to stay that way until "time" heals all wounds.

mortgages...ok the rule of thumb is this or that 2 years for this 3 years for that. fact is money talks...you have enough of it and someone is likely to work with you, although it most likely depends on where you are. we now have a few people on this forum that actually got a mortgage within 2 years. i did, but my case is different because i owner financed, a hard task to find a good house to do that with and we just lucked out. however, we are in florida where there is a vast amount of inventory laying around.

i say within 36 months the mortgage market is going to open up to those that lost their homes. it may be a government run program, but somethings going to give, there is just too many homes sitting and rotting through out the usa. we will see.

as hhm points out, really credit is the least of his worries right now. unless he's really wanted to keep him home i wouldn't give it a second thought.
we left after over 30 years , it was SO hard and looking back it was the BEST decision we ever made in our entire lives besides filing bk. each situation is different and you need to treat it accordingly. however, again as hhm points out, if it's not worth it, don't spend more to money after bad, put it to the future and the good.

best of luck!