“I Have Equity in my Home. Will I lose it in Bankruptcy?”

Friday 5th of October 2012 01:18:12 AM

Let me start by saying to those who were wondering; If you owe more on your home than it is worth, the Bankruptcy Trustee will have no interest in selling your home to pay creditors.

Now, what if you DO have some equity?  You are allowed to keep up to almost $150,000 of equity in the Central District of California.  How much you will be allowed to keep is a formula which includes your age, your spouse’s age, how many dependants you have and several other factors.

Don’t write off bankruptcy just because you are scared that you will be losing the equity in your home.  Let us figure out if you really run a risk of losing it.  There is no obligation and no fee.

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“I Have Equity in my Home. Will I lose it in Bankruptcy?”

Friday 5th of October 2012 01:12:55 AM

Let me start by saying to those who were wondering; If you owe more on your home than it is worth, the Bankruptcy Trustee will have no interest in selling your home to pay creditors.

Now, what if you DO have some equity?  You are allowed to keep up to almost $150,000 of equity in the Central District of California.  How much you will be allowed to keep is a formula which includes your age, your spouse’s age, how many dependants you have and several other factors.

Don’t write off bankruptcy just because you are scared that you will be losing the equity in your home.  Let us figure out if you really run a risk of losing it.  There is no obligation and no fee.

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Forgiven Debt, Taxable Income and Bankruptcy

Thursday 4th of October 2012 06:43:23 PM

Creditors can ‘write off’ debts; forgive them altogether.  Great, for you, right?  Well, not necessarily.

All of a sudden, you receive an IRS 1099 form, showing that your debt in the sum of (>>fill in your amount) was forgiven and can now be considered taxable income by Uncle Sam.

Such a scenario is very common in the case of junior mortgage holders who lose their lien on a property after the first mortgage holder forecloses.

However, there is still hope in bankruptcy.  Internal Revenue Code section 108 explicitly states that debts discharged in a bankruptcy case do NOT get included in income on the debtor taxpayer’s tax return.

The clincher:  Timing.  The Internal Revenue Code also states that such a discharge must take place before the event giving rise to the debt obligation.  This you would have to figure out with a tax professional, but there is hope, just make sure that you file your bankruptcy IN TIME.

There may be some exceptions carved out of the Tax Code if this scenario involves your home, but no such protections exist for other real property.

Tread carefully, take care of business in a timely fashion, and you may escape having to pay a bunch of extra tax on forgiven debt, an amount that could be sizeable if you are looking at a forgiven mortgage debt.

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