How much is NOT FILING worth?

[Dancer]

This might be an impossible question to answer so sorry in advance.

My DH has a home that is underwater. We've tried to do a short sale and the bank pushed back and wanted a promissory note. Now the bank has backed down and it looks like they are going to approve the short sale with forgiveness of about $30K.

DH has credit card debt of about $16K.

Short sale is about to be finalized. I want to stop it to give us more time to decide about filing.

I could pay out of my savings all of DH's debts (assuming about $8K in taxes for the forgiven mortgage and $16K for the credit cards).

Is $24K out of our savings worth DH not filing for bankruptcy? Because I'm about to be done working, we won't be able to replace that money $26K in our savings for years. I asked a similar question when my parents were offering to help us and we resolved that was throwing good money after bad. However, because I'm his wife I have a vested interest in protecting his financial future just as much as my own.

[keepmine]

I'd not pay $24K for debt that may be discharged in bk since you say you'll not recoup it.

If your husband is working, is his circumssatnces such that he could pay off the debt over a few years?

[Dancer]

Yes, I think he could pay off the debt over a few years.

ETA, here's the other piece of this. If he filed today, it would have to be a Chapter 13. If this can wait a few months, he should be able to file a Chapter 7. Why I am SO ticked off right now is that the attorney's office is madly working to finalize the short sale but won't answer my questions about why we're in a rush at all if there is a Chapter 7 vs. Chapter 13 issue.

[LadyInTheRed]

Are you sure you wouldn't be in breach of contract if you cancelled the sale?

[Dancer]

DH might be in breach of contract but based on what I've read the only remedy the buyer has would be to go to court to compel DH to go through with the sale. That would cost them money and time so it's likely they would not go through with it. And even if they did, it buys us time. We're not against the sale, just the timing of the sale.

I'm not sure if there would anything due to the attorney or the realtor. I've asked DH to show me what he's actually signed. The contract should outline his obligations.

I called the attorney's office this morning and the assistant said I'd get a call back today but no one called. My last call was 2 weeks ago and at that time I asked about the timing of the short sale. No call returned then either.

The only contact we've had is that DH was asked to sign something on friday with the new price.

Looking back, I'm really kicking myself about going down the short sale path at all. The first attorney we consulted with said that short sales were for suckers because the only people they benefited were the realtors and the attorneys. Now everyone is about to make a nice buck off of this sale and we're left hanging; either having to pull money out of my savings or file a Chapter 13 knowing that we'll try to convert it to a 7 in a few months.

[keepmine]

Why the rush to file either chapter of bk?

[Dancer]

As I understand it (and perhaps I'm wrong), DH has to file for BK before the short sale goes through and the bank forgives the $30K or the $30K is considered to be taxable income. See this link from Nolo. http://www.nolo.com/legal-encycloped...e-30016-2.html

So ISTM that DH either has to stop the short sale, or file for chapter 13 or accept that we have to pay taxes on the forgiven amount (about $8K).

I don't think we can count on Congress getting its act together to extend the Mortgage tax forgiveness bill into 2014.

All of the rush comes from the stupid short sale. We should have let it go into foreclosure and bought ourselves about another year before DH had to do anything.

[keepmine]

You may well be better off by not filing bk.
You should be able to workout a payment plan with the IRS and over the course of a few years, payoff the cc debt.

[Dancer]

I read the listing agreement DH signed. It states that if he refuses to close he would have to pay the brokerage fee to the realtor. So it sounds like he will have to go through with it.

This morning, the realtor is emailing DH asking why he's not signing the contract. The realtor says our attorney said that they are waiting on DH to sign too. When I told the office assistant yesterday morning that we needed some answers before he signed anything. I called again this morning and left another message.

I'm really ticked off that the attorney is communicating with the realtor but not us. And I'm mad that they are saying that DH is delaying signing when we told them that we had some questions first. Why not just answer the questions???? They want him to sign the contract but haven't even confirmed with us whether the bank is forgiving the difference. Everyone seems to assuming that's the case but I would official confirmation of that.

[keepsmiling]

YOU MAY NOT BE LIABLE FOR THE TAX DEBT.
The insolvency exception to tax liability. If you don't qualify for an exception under the Mortgage Forgiveness Debt Relief Act, you might still qualify for tax relief. If you can prove you were legally insolvent at the time of the short sale, you won't be liable for paying tax on the deficiency.
Legal insolvency occurs when your total debts are greater than the value of your total assets (your assets are the equity in your real estate and personal property). To use the insolvency exclusion, you'll have to prove to the satisfaction of the IRS that your debts exceeded the value of your assets. (To learn more about using the insolvency exception, read Nolo's article Tax Consequences When a Creditor Writes Off or Settles a Debt.)

[Dancer]

Finally a call back from the attorney. As I suspected based on the listing agreement, it's too late to back out of the short sale because DH could be liable to the agent.

Which means that DH will have to file when he's not eligible for a 7. He'll be forced into a 13 and then we'll try to convert it to a 7 once I'm not working anymore.

All this because of the stupid short sale. The short sale took away from us the luxury to file when it best fit our needs.

DH still wants to file. He does not want to pull money out of my savings to pay off his credit cards or the taxes.

At this late in the game, if there any benefit to talking to another attorney about the BK filing?

[Dancer]

Edited to delete the duplicate post.

[keepsmiling]

Not sure I'd file for 24K. Others here will disagree.
See what your tax liability winds up being. (see above post re insolvency)
Then revisit. There are, occasionally, times that settlement is the better choice.

[Dancer]

Thanks, KeepMine. Looks like you posted at the same time as I did so I didn't see your response until now.

BTW, the Mortgage Forgiveness Debt Relief Act expired at the end of 2013. I know some in Congress are trying to get it extended through the end of 2014 but I don't think it's going to happen. It's apparently caught up in larger discussions about the Budget.

The other part of this is that DH owns a house with his ex-wife. He's on the deed and the second mortgage (not the first). DH thinks that filing for BK will force the issue of the house with his ex. That this will finally force her to put it up for sale.

I'm on the fence about this now.