On Short Sales & Foreclosures in Bankruptcy
A San Jose Bankruptcy Attorney explains how a short sale or foreclosure can create an unexpected tax bite that a Chapter 7 bankruptcy can prevent.
Given the current state of the economy and the drop in housing values, may people are pursuing short sales to avoid the stigma of a foreclosure on their credit report. What many of them do not realize is that both a short sale and a foreclosure can lead to unexpected tax hits from the IRS if they used home equity loans when the value of their home is high. If the home equity loan, is forgiven in the short sale or foreclosure, you can owe taxes on the amount forgiven from the second mortgage as taxable income.
This is not the case in a Chapter 7 bankruptcy filing. In a Chapter 7 bankruptcy, the estate is liquidated, and any erased debts are not taxable by law. In a Chapter 13 bankruptcy filing, the estate is “reorganized” and the debtor is allowed to pay back some of the debts based on his or her income. Your bankruptcy attorney can help you sort through the options available to you and can explain any possible tax consequences of a Chapter 13 bankruptcy.
Bankruptcy is not the end of the world financially, nor should it be used lightly. To that end the 2005 bankruptcy reform law set guidelines on how long a filer must wait before he or she can file for bankruptcy following a Chapter 7 or Chapter 13 bankruptcy filing.
Equity loans come back with a bite, The Press Democrat, December 5, 2009
If you have questions regarding bankruptcy in San Francisco or bankruptcy in the greater Bay Area please contact our San Francisco Bankruptcy Attorneys at (415) 946-8882 for a free consultation or visit www.bkanswers.com and we can connect you with one of our experienced San Francisco Bankruptcy Attorneys. After you have spoken with one of our Bay Area bankruptcy attorneys, we can schedule you for a free face to face appointment in an office location nearest you. Our team of Bankruptcy Lawyers, Bankruptcy Customer Care Specialists and Bankuptcy staff supporting San Francisco and Bay Area consumers in debt can assist you with all aspects of your bankruptcy or bankruptcy litigation case. If you have questions about filing a Chapter 7 bankruptcy, a Chapter 11 bankruptcy, a Chapter 13 bankruptcy, or would like to learn more about bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, cram down, stopping a foreclosure, wage garnishment, asset protection, discharging a debt, etc. we can help! We have bankruptcy attorneys located throughout California and Oregon who can assist you with all of your debt resolution questions. Please feel free to complete our free online bankruptcy evaluation and we can quickly determine if you are a qualified candidate for bankruptcy. We look forward to hearing from you, San Francisco Bay Area!
