In the past, if you were behind on your mortgage payments and did not want to keep your home, you had the ability to surrender it without much concern. Everything changed however at the start of 2014. The mortgage debt forgiveness relief act was not extended into 2014. This means that if you surrender your home, you may be hit with a huge tax known as cancellation of debt or debt forgiveness. This amount has to be added to your taxable income in the upcoming year.
If you do a short sale, you will still be hit with a taxable event because of the cancellation of debt. In prior years, short selling a home was a way to avoid a mortgage deficiency as well as a taxable event due to the mortgage debt forgiveness relief act. However since the mortgage debt forgiveness act was not extended, short selling of property now will create a taxable event. You may also have to take on a small note unless the mortgage company is willing to accept the actual fair market value and not seek a deficiency.
Because the window of time has closed where you could surrender or short sale a house without a taxable event, it makes more sense more than ever to try and save your home from foreclosure. You can do this by filing a chapter 13 bankruptcy case. Chapter 13 will allow you to pay the mortgage arrearages over a three to five-year period while making your regularly scheduled mortgage payment on time from the date of filing forward. Hopefully, you are in a situation where your home is not underwater or if it is underwater not to a great extent. It may turn out that trying to save your home through chapter 13 will help you with other debt as well.
Mortgage arrearages have to be paid back in full in a chapter 13 if you wish to keep the home. Other debt however, can be paid back less than in full in many cases. Some debts can be paid back at as little as 10%. So if you have credit card debt or other debt totaling $50,000, there is a strong possibility that under chapter 13 you wind up paying back anywhere from 10% to 25% of that debt.
Saving your home and paying less than what is owed on other debt is one of the many benefits of filing chapter 13 bankruptcy. For more information on what you could be looking at under chapter 13, contact my office at 847-520-8100. The first consultation is always complementary and the advice can be life-changing.
