Category Archives: CA Bankruptcy Lawyer

Foreclosure and What are the Tax Consequences, Do You Have to File For Bankruptcy?

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These past couple years have been very hard on homeowners, with homes being foreclosed left and right.  If you have been caught in this crisis as well, you may need to know what your options are after your home is foreclosed, and whether one of those options includes bankruptcy.

If your residential property was foreclosed and you only had one mortgage on the property, then you may not need to file for bankruptcy since the creditors cannot go after you for any deficiencies due to the One Action Rule.  However, under normal circumstances, even if the creditors do not go after you for the deficiency, you may still owe a hefty chunk to the taxing authorities, the Internal Revenue Service (“IRS”) and California’s Franchise Tax Board (“FTB”).  That is because the taxing authorities could treat the cancellation of debt as a taxable event since you did not have to pay the deficiency to the mortgage creditor, and thus the money you did not have to pay them is considered income.  This is a harsh double whammy for homeowners who have lost their home, and now they have a hefty bill they need to pay the taxing authorities.

Since the foreclosure rates have been so high in the most recent years, the federal and state governments have created temporary laws that would help ease the financial hardship of homeowners who have lost their homes.  IRS created the Mortgage Forgiveness Act of 2007, which forgives up to $1 million in debt for the deficiencies related to the foreclosure of a primary home for a single or married filing separate taxpayer and up to $2 million for a married couple.  The debt has to be related to the house, either building, improving, or maintaining it.  There could be multiple mortgages on the house, and as long as they were all used for the property, you would not have to pay taxes on the cancellation of that debt.  The trouble that a lot of homeowners run into is the fact that sometimes the second mortgages are taken out to pay off their credit card debt or buy new cars, which have nothing to do with the house.  If that is the case, the deficiencies on that debt are still a taxable event to the IRS.

California has a similar program that protects homeowners who have lost their homes in a foreclosure.  They exclude up to $250,000 of debt for deficiencies related to foreclosure of a primary residential property for a single or married filing separate taxpayer and up to $500,000 for a married couple.

Since both the federal and state governments are protecting only primary residences, if you have a rental property, or business property, or even second mortgages that were taken out to pay off debt that is not related to your home, the cancellation of such debt are still considered taxable events.  If you are in this situation, please contact our Fremont bankruptcy lawyers or Union City bankruptcy lawyer today at 877-9NEW-LIFE or 877-963-9543 today.

CA Bankruptcy Lawyer

By Ryan C. Wood, Attorney at Law

The process of filing for bankruptcy really should not be attempted without the counsel of an experienced CA bankruptcy lawyer.  Like any area of the law it is best to let someone who has done in hundreds of times help you.  We have filed hundreds of bankruptcy cases for residents of the Bay Area successfully time and time again.  We did not start practicing bankruptcy law as extra income.  This is all we do.

If a chapter 7 bankruptcy is not filed properly you could lose some of your assets like a car or other valuable item.  Worse, your case could be dismissed without receiving a discharge.  This would be terrible given that the whole point in filing for bankruptcy is to get rid of (discharge) your unmanageable debts.  There are certain requirements that must be completed when filing for bankruptcy protection.  You must take the required courses ($14.99 total for a single person) and provide documents to the trustee assigned to your case.  Some chapter 7 bankruptcy cases are somewhat routine, but if anything goes wrong you will seek out an attorney to help you get out of it.  It is prudent to start the process and end the process with the counsel of an experienced bankruptcy attorney.

Filing a chapter 13 bankruptcy case is even more complex and there are almost no chapter 13 bankruptcy cases that are successfully without the assistance of an attorney.  The first issue is the trustee’s offices do not want to deal with bankruptcy filers that do not have attorneys.  It is not their job to make sure you represent yourself correctly or file the necessary documents on time and accurately.  The trustee’s job is to administer the bankruptcy estate.  Formulating a chapter 13 bankruptcy plan of reorganization is challenging even for some attorneys.  If the chapter 13 plan is not correct the trustee’s office will not recommend approval of the plan.

Even if you are successful in having the chapter 13 plan confirmed, what will you do when something comes up during the second year of the plan or reorganization?  You can longer afford to make the chapter 13 plan payment each month?  You have lost your job?  Now what?  Or you won the lottery.  Now what?  What you should have done is retained a bankruptcy lawyer.  Retaining our services will answer each of these questions.  We have the experience you can depend on when an issue arises.

For more information about whether bankruptcy is right for you, contact our Fremont bankruptcy lawyers.  You may also contact our Union City bankruptcy lawyers for additional information about obtaining a fresh start through bankruptcy.