Please help or give me some advice??

[frank1010]

Need some advice and opinions on the following:

I am currently 5 months behind on my mortgage ($7,500). We went to speak with a lawyer the other day. She told us that we should file for Chapter 13 bankruptcy. More financial info below. We went in with the intention that we are going to voluntary foreclose but did not realize that the mortgage company could come after us for years to come for the remainder of the money. She recommends we file Chapter 13 and foreclose. It would allow us to rent a bigger home and we do realize it could be 7 years before we can own again. Still need some advice?
1. Cost would be approx $4k to lawyer, that sound about right?
2. What do you think about all of this?
3. I have a credit card thru work (travel, etc) It’s thru Mastercard and has my name on it. Yet it does not show on my credit report. Can I get in trouble at work for doing this and risk loosing the card?
4. Any other way I can foreclose on my home and not file Chapter 13. We grew up thinking how bad this all was but more I read, the more I’m convinced this is not that bad of an idea???
5. She said if I file Chapter 13 that will clear the mortgage company from coming after us. Is that true?
Financial Information
Home: Owe approx $155k, worth approx $100k
Home equity loan: $12k
School Loans: Owe approx $70k
Car: Owe $25k
Credit Cards: Approx 8 cards at $25k
We have $8k in the bank. One income, approx $90k a year. So if I pay the mortgage and get current, everything else is gone.

[tobee43]

I am currently 5 months behind on my mortgage ($7,500). We went to speak with a lawyer the other day. She told us that we should file for Chapter 13 bankruptcy. More financial info below. We went in with the intention that we are going to voluntary foreclose but did not realize that the mortgage company could come after us for years to come for the remainder of the money.

this is not true if you file by the close of 2012 because you would be covered under the The Mortgage Forgiveness Debt Relief Act and Debt Cancellation:

http://www.irs.gov/individuals/article/0,,id=179414,00.html

She recommends we file Chapter 13 and foreclose. It would allow us to rent a bigger home and we do realize it could be 7 years before we can own again. Still need some advice?

many are choosing to rent as opposed to buying again. it's usually 2-3 years or so they say after a foreclosure that one can obtain a mortgage, (also after bk) although, personally i have seen almost no one approved.

1. Cost would be approx $4k to lawyer, that sound about right?

sounds about right for a 13, could even be more in some cases, i was a 7, but those that went through a 13 can be more specific about the costs, which will vary.

2. What do you think about all of this?

this? i'm not certain?

3. I have a credit card thru work (travel, etc) It’s thru Mastercard and has my name on it. Yet it does not show on my credit report. Can I get in trouble at work for doing this and risk loosing the card?

if it's via your work, i am not certain, but if it's actually in the company's billing system then really the card is theirs even tho your name is on it, you just use it for business expenses correct?

4. Any other way I can foreclose on my home and not file Chapter 13. We grew up thinking how bad this all was but more I read, the more I’m convinced this is not that bad of an idea???

well, to take advantage of the mortgage debt relief act you must be within the guidelines of the criteria required by the act...otherwise, you could indeed be responsible for any shortfall when the house sells after foreclosure. one of those criteria is to be insolvent, which when on declares bankruptcy that is good enough to meet that standard and the debt will be forgiven. if not, you will owe the difference.

5. She said if I file Chapter 13 that will clear the mortgage company from coming after us. Is that true?

it will put a stay until a plan is put into place and will hold off any action from the bank until you are confirmed with a payment plan i most cases.

Financial Information
Home: Owe approx $155k, worth approx $100k
Home equity loan: $12k
School Loans: Owe approx $70k
Car: Owe $25k
Credit Cards: Approx 8 cards at $25k
We have $8k in the bank. One income, approx $90k a year. So if I pay the mortgage and get current, everything else is gone.

it appears with your income that a plan may work very well for you in a chapter 13 and allow you to get back on your feet. best of luck to you! hopefully some of our experienced chapter 13'ers will chime in with some input for you!

[keepmine]

The Mortgage Forgivness and Debt Relief Act applies to any tax consequences in a foreclosure.
It won't prevent the lender from suing you for a deficiency balance.
I'd suggest you look at a Chapter 7 and surrender the home. Your big problem in a Chapter 13 is, you won't be able to pay those student loans during the life of the 13 {they'll be defered} and upon discharge the penalties and interest added will make them unmanagable.
You just owe to much on debt that won't be discharged in relation to your salary to make a 13 pratical. You need to really downsize your living expenses and get those under control.

[tobee43]

The Mortgage Forgivness and Debt Relief Act applies to any tax consequences in a foreclosure.
It won't prevent the lender from suing you for a deficiency balance.
I'd suggest you look at a Chapter 7 and surrender the home. Your big problem in a Chapter 13 is, you won't be able to pay those student loans during the life of the 13 {they'll be defered} and upon discharge the penalties and interest added will make them unmanagable.
You just owe to much on debt that won't be discharged in relation to your salary to make a 13 pratical. You need to really downsize your living expenses and get those under control.

i have to disagree with you on this subject, it does, in fact forgive the entire debt not just the tax ramifications, provided you met the criteria, to apply the act to one's situation.

it does in fact help with the tax:

Ten Facts for Mortgage Debt Forgiveness

IRS Tax Tip 2011-44, March 3, 2011

If you are a homeowner whose mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income.

Here are 10 facts the IRS wants you to know about Mortgage Debt Forgiveness.

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.

2. The limit is $1 million for a married person filing a separate return.

3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.

5. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

6. Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

8. Debt forgiven on second homes, rental property, business property, credit cards or car loans do not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such as insolvency – may be applicable. IRS Form 982 provides more details about these provisions.

9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box


however, if you have claimed bk and listed the mortgage and it has been discharged they cannot go after you for the deficiency, as the debt was fully discharged. however, the lender can 1099c one for the loss they are claiming. while true, one will not be responsible.



also, the insolvency exclusion is particularly relevant, as it will likely apply to borrowers with home equity loans or mortgages on second homes and rental properties.

this insolvency provision will prove helpful to individuals who don't otherwise qualify for the mortgage debt relief. to be considered insolvent, the person's liabilities must exceed the fair market value of their assets. this is will be especially true of borrowers who's properties have dropped in value and who now must restructure their loans or surrender their properties through foreclosure.

"You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. Determine your liabilities and the fair market value of your assets immediately before the cancellation of your debt to determine whether or not you are insolvent and the amount by which you are insolvent."

in essence, when you have listed your mortgage and it was discharged in your bk, and you live in a decency state, you are fairly safe, IMHO.

another point here...is the 1099C is issued as the loss to claim to the government on behalf of the lender, so the lender cannot in turn turn around and attempt to collect a debt they just claimed to the government as a loss....

[HHM]

Tobee, I whole-heartedly disagree with your interpretation, the Mortgage Debt Forgiveness Act ONLY excludes the deficiency from being counted as taxable income, that is it. It does not, it CANNOT, forgive the collectability on the deficiency. Collectability is an issue of state law. So long as the debtor lives in a "recourse" state, the debtor will be liable for a foreclosure/short sale deficiency.

Hard to say which chapter of BK you should file, the lawyer may simply be suggesting chapter 13 because you make too much money to qualify for chapter 7.

But all things being equal, assuming you can qualify for chapter 7, you should probably file chapter 7 and walk away from the house. If you do not qualify for chap 7, then chap 13 is a very very good alternative to get back in control of your finances. Basically, given what you described, you need BK, the only question is which BK.

[tobee43]

i agree with me...LOL!! hhm...the banks cannot double dip. they cannot issue a 1099C to the government for a loss and then attempt to collect that loss from the person issued the 1099C. so, what they get credit for the loss and then try and collect it from someone. what then, do they issue another tax form to indicate their income?

and, i am also speaking in respect to a discharged bk that included the mortgage.

the banks and lenders notify the government with respect to their losses by the issuance of the 1099C, 1099A etc. so now they take the loss count it against their stats, whether it's collecting of governmental funds that they may claim or PMI or just a simply a business loss, they then cannot go after someone after writing it off their books. nahhhhhhhhh...i'm hard press to be correct on this one or not? who really knows anything anymore?

[Flamingo]

i agree with me...LOL!! hhm...the banks cannot double dip. they cannot issue a 1099C to the government for a loss and then attempt to collect that loss from the person issued the 1099C. so, what they get credit for the loss and then try and collect it from someone. what then, do they issue another tax form to indicate their income?

and, i am also speaking in respect to a discharged bk that included the mortgage.

the banks and lenders notify the government with respect to their losses by the issuance of the 1099C, 1099A etc. so now they take the loss count it against their stats, whether it's collecting of governmental funds that they may claim or PMI or just a simply a business loss, they then cannot go after someone after writing it off their books. nahhhhhhhhh...i'm hard press to be correct on this one or not? who really knows anything anymore?

Reread HHM's first sentence. The IRS " ONLY excludes the deficiency from being counted as taxable income, that is it. It does not, it CANNOT, forgive the collectability on the deficiency." What occurs is that the taxpayer does not have to list the deficiency as taxable income when filing taxes for that year but, as indicated, that does not prevent the lender from going after the deficiency as they still have a loss that can be collected if allowed by that state. If the lender is able to collect on this loss that too all gets reported on the lender's future tax return filings and does not get overlooked. If it doesn't get collected, it takes a toll on the person's credit reports for many years. In situations like this, it is always best to have a professional do one's tax returns and go over the entire situation to prevent future problems/issues.

[justbroke]

Tobee, the issue is that the bank does not have to forgive the debt, so no 1099-C. It's that simple. A 1099-A is not forgiveness of debt and only a statement showing that the property was foreclosed upon. You can't impute forgiveness of debt (1099-C) from a foreclosure (1099-A).

The purpose of the act, as HHM writes, was only to deal with 1099-Cs issued. If the creditor gets a foreclosure judgment that includes deficiency, then they now have a judgment which would be collected under normal collection rules. Of course if this is a non-recourse loan, it's all moot.

[tobee43]

yes yes flamingo, i understand but look at this thread.....http://www.bkforum.com/showthread.ph...ank-of-America

i also understand the amount on the 1099C's are in fact what the banks are claiming as the total loss and it is their way of notifying the government of that loss. so again, whether it's for tax reasons or not, it's still a submitted amount that they are claiming as a loss as well as the facts about the taxable income being excluded. it's interesting enough. i don't know where a bank has been successful. i don't know if you remember the story of a man here in the middle district that the bank was going after after his bk and the bank also got slammed. go figure. i can't.

it's a perfect senerio of a bank attempting to collect in a defincey state after a discharge and the party was awarded damages...

once again, i also feel the banks must do their due diligence in attempting to collect on the FHA and mortgages with PMI's before they go after people. ...but that's really another subject matter. and correct, this best left up to the professionals.

[tobee43]

Tobee, the issue is that the bank does not have to forgive the debt, so no 1099-C. It's that simple. A 1099-A is not forgiveness of debt and only a statement showing that the property was foreclosed upon. You can't impute forgiveness of debt (1099-C) from a foreclosure (1099-A).

The purpose of the act, as HHM writes, was only to deal with 1099-Cs issued. If the creditor gets a foreclosure judgment that includes deficiency, then they now have a judgment which would be collected under normal collection rules. Of course if this is a non-recourse loan, it's all moot.

yes, i understand, however, i am going to be very interested in exactly how this is going to play out in the future for many. and once again, i'm referring to discharged mortgages in a bk...and really also those that were in fact covered by insurance or the government. there are so many thousands of these loans out there, i am curious to see what the future will bring.

ps. thanks jb for explaining it in the other thread, didn't mean to tie them together..sorry OP!

[HHM]

Okay, there seems to be some talking past one another because we are referring to different contexts. So let's clarify the issues.

1. The No Bankruptcy Scenario, house forecloses/short sold
In a recourse state, the bank can pursue a deficiency. The bank has the "option" to forgive the debt, but doesn't have to. The Mortgage Debt Forgiveness act does not prevent a bank from collecting the deficiency. If the bank "chooses" to forgive the debt and issues a 1099-C, then the debtor has 2 options to exclude the deficiency from being counted as income, (a) mortgage debt forgiveness act, assuming all criteria are met, or (b) insolvency.

2. A bankruptcy scenario.
Here, the issue comes down to timing, e.g. when the BK is filed relative to the short sale or foreclosure, again, we will assume we are in a recourse state.
1. BK prior to foreclosure: mortgage loan is discharged, as such, any future deficiency is not collectable. The bank may still issue a 1099-C, but the debtor need only complete IRS Form 982 and check the box for "included in BK". No need for Mortgage Debt Forgiveness Act
Here is where things get grey
2. BK filed after foreclosure, but same tax year as foreclosure (e.g. both the foreclosure was complete and the BK filed in 2011). The bankruptcy discharges the collectability of the deficiency, buy "might not" discharge the income tax consequences. In my opinion, so long as BK occurred in same tax year, you get to check the "included in BK" BK box on Form 982, but could also fall back on MDFA or Insolvency. However, there is disagreement on this point.
3. BK filed after foreclosure, and not in same tax year. The bankruptcy discharges the collectability of the deficiency, but if the bank already forgave the debt (issued 1099-C), the BK does NOT exclude the deficiency from being counted as taxable income. The debtor must fall back to MDFA or Insolvency.

Side Note: When it comes to real estate disposition, there are 2 tax forms at issue, 1099-A and 1099-C. 1099-A is mandatory, it is the form that simply informs the IRS that a real estate sale took place, it has no other purpose. It is a reporting document that lets the IRS know a "potentially" taxable event took place. The tax at issue for 1099-A is Capital Gains. 1099-C is optional (at least, in recourse states). If there is a deficiency balance, the banks may "choose" to forgive the debt, and if the debt forgiven is more than $600, then they must issue 1099-C. The two form are entirely UNRELATED. 1099-C relates to "forgiven debt income". Forgiven debt income is simply counted as part of the taxpayers gross income for tax purposes.

[momofthree]

I'm wondering if you have the discipline for a ch.13. Your income is $90k annually and you fell 5 months behind on your $1500/mo mortgage. Did unemployment play a role in this? Or a medical emergency of some sort? $1500/mo should be easily do-able with a $7500/mo income. If it wasn't, then ch.13 is not for you. You MUST learn to live within a strict budget, you MUST save every dime you can during the first year or so because you will not have credit to fall back on when emergencies pop up. You will only be allowed a certain dollar amount each month for living expenses and the rest goes to your plan payment. As far as the mortgage, the unsecured portion will be added to your pool of unsecured creditors (credit cards), and paid at the same rate. At your income level, you may be on the hook for a large portion of that balance unless you have an unusually large family or extraordinary out-of-pocket medical expenses. All factors to consider.

On second though, is this a strategic default? You have $8k in the bank and arrears of $7500, so you could pay the arrears if you desired....

[tobee43]

Okay, there seems to be some talking past one another because we are referring to different contexts. So let's clarify the issues.

1. The No Bankruptcy Scenario, house forecloses/short sold
In a recourse state, the bank can pursue a deficiency. The bank has the "option" to forgive the debt, but doesn't have to. The Mortgage Debt Forgiveness act does not prevent a bank from collecting the deficiency. If the bank "chooses" to forgive the debt and issues a 1099-C, then the debtor has 2 options to exclude the deficiency from being counted as income, (a) mortgage debt forgiveness act, assuming all criteria are met, or (b) insolvency.

2. A bankruptcy scenario.
Here, the issue comes down to timing, e.g. when the BK is filed relative to the short sale or foreclosure, again, we will assume we are in a recourse state.
1. BK prior to foreclosure: mortgage loan is discharged, as such, any future deficiency is not collectable. The bank may still issue a 1099-C, but the debtor need only complete IRS Form 982 and check the box for "included in BK". No need for Mortgage Debt Forgiveness Act
Here is where things get grey
2. BK filed after foreclosure, but same tax year as foreclosure (e.g. both the foreclosure was complete and the BK filed in 2011). The bankruptcy discharges the collectability of the deficiency, buy "might not" discharge the income tax consequences. In my opinion, so long as BK occurred in same tax year, you get to check the "included in BK" BK box on Form 982, but could also fall back on MDFA or Insolvency. However, there is disagreement on this point.
3. BK filed after foreclosure, and not in same tax year. The bankruptcy discharges the collectability of the deficiency, but if the bank already forgave the debt (issued 1099-C), the BK does NOT exclude the deficiency from being counted as taxable income. The debtor must fall back to MDFA or Insolvency.

Side Note: When it comes to real estate disposition, there are 2 tax forms at issue, 1099-A and 1099-C. 1099-A is mandatory, it is the form that simply informs the IRS that a real estate sale took place, it has no other purpose. It is a reporting document that lets the IRS know a "potentially" taxable event took place. The tax at issue for 1099-A is Capital Gains. 1099-C is optional (at least, in recourse states). If there is a deficiency balance, the banks may "choose" to forgive the debt, and if the debt forgiven is more than $600, then they must issue 1099-C. The two form are entirely UNRELATED. 1099-C relates to "forgiven debt income". Forgiven debt income is simply counted as part of the taxpayers gross income for tax purposes.

thank you hhm, that is an extremely precise and understandable explanation of what is what and how it all theoretically works.

[tobee43]

I'm wondering if you have the discipline for a ch.13. Your income is $90k annually and you fell 5 months behind on your $1500/mo mortgage. Did unemployment play a role in this? Or a medical emergency of some sort? $1500/mo should be easily do-able with a $7500/mo income. If it wasn't, then ch.13 is not for you. You MUST learn to live within a strict budget, you MUST save every dime you can during the first year or so because you will not have credit to fall back on when emergencies pop up. You will only be allowed a certain dollar amount each month for living expenses and the rest goes to your plan payment. As far as the mortgage, the unsecured portion will be added to your pool of unsecured creditors (credit cards), and paid at the same rate. At your income level, you may be on the hook for a large portion of that balance unless you have an unusually large family or extraordinary out-of-pocket medical expenses. All factors to consider.

On second though, is this a strategic default? You have $8k in the bank and arrears of $7500, so you could pay the arrears if you desired....

those are really excellent points momo, and agree, it seems as though this really should be something that can or possibly we worked out, if wanted.

[LadyInTheRed]

frank1010, is the mortgage your only problem? If so, have you explored the possibility of a short sale or a consent judgment? If not, you may want to talk to an attorney about these options. Either one would prevent the bank from pursuing a deficiency after foreclosure (see IL Code of Civil Procedure Sections 15-1509(c) (under Part 15) and 15-1402 (under part 14)). I know a short sale is a hassle, but it would be preferable to a 5 year chap 13 if you have no other reason to file BK. A consent judgment is apparently sometimes offered by a bank in a foreclosure complaint in order to speed up and simplify the foreclosure proceeding. I don't know how common it is, but it could be worth waiting for the foreclosure to find out if the bank offers it. If not, you can always file BK after the foreclosure to discharge the deficiency.

How many are in your household. It sounds like at least 2. Any kids?