Will Filing Bankruptcy Cause Me to Lose My Home?
Many people fear the idea of filing for bankruptcy.
The thought that one can lose his or her home after going through the bankruptcy procedure just makes the fear ever stronger.
During the entire real estate bubble of the 2000s, many people saw their net worth risen year over year because of the hot real estate market.
Filing bankruptcy appears to be such a shameful affair that people avert it at all cost.
But in the end, many people worry about the circumstances of their house if they are filing for bankruptcy shelter.
After all, people need to know if their home is safe from the bankruptcy trustee and its court.
fundamentally there are 2 types of bankruptcy, and each one gives you the ability to keep your house or not.
If you are filing Chapter 13 bankruptcy, you will be allowed to keep your home and ownership of it provided that you can pay for the mortgage each and every month.
With Chapter 7 bankruptcy, there are other factors which can alter if you will be allowed to keep the house or not.
If you can afford to pay the month mortgage, and the equity in the home is exempt, you will be allowed to keep the home under Chapter 7 bankruptcy.
Is there a time when I should give up my house If the market value of your home is significantly less than the total liability that you have on the house, you should consider walking away from the house during your bankruptcy process.
There is no authoritative answer to this question, but if your house is not worth as much as you owed to the creditors, it just makes sense to walk away from it and stop the financial bleeding now.
This alternative might not suit everyone because if you do give up your house, you will still need an alternate place to live in.
Many people believe short sale can help A short sale of your house is by definition selling your house for less than what the total mortgage (primary/secondary mortgage, line of equity) is worth.
An example of a short sale goes like this: a house has a mortgage of $400,000 but the current market value of the house is much less than $400,000.
Short sale procedure begins when the homeowner submits a request to the lender to sell the home at a lower price.
If all the lender(s) approve a sale of $350K, then the $50K deviation is absorbed by the lenders and booked on their records as a loss.
Is short sale a better alternative than bankruptcy? If you are thinking of filing bankruptcy because you can no longer afford the mortgage on the house, then short sale is a chance and you would not have to declare bankruptcy.
If the lender is willing to accept the offer of the lowered price and take the short sale, you will come away from the entire process with no negative report on your credit history.
Short sale gives you the advantage of credit report free from any flaw and the ability to remove a heavy debt.
Nothing is free in this world, short sale has a negative side effect also.
When the lenders book a loss on their books, they will in turn issue a 1099 to you.
IRS has the form 1099 to suggest additional income has been achieved.
Going back to the example of the $400,000 house.
The lender took a short sale for $350,000 and actually lost $50,000 in the deal.
The lender then issue a 1099 for $50,000 to the mortgagee.
What this entails is that at the end of the year, from the IRS viewpoint, you effectively had supplementary income of $50K which you will need to pay tax on.
As you can see, short sale gives you the power to walk away from the home without having an infraction on your credit, with the disadvantage of having to pay for the taxes eventually.
Whereas through bankruptcy, you will be able to walk away from the home, granted that your credit will be ruined for the next 10 years.
The thought that one can lose his or her home after going through the bankruptcy procedure just makes the fear ever stronger.
During the entire real estate bubble of the 2000s, many people saw their net worth risen year over year because of the hot real estate market.
Filing bankruptcy appears to be such a shameful affair that people avert it at all cost.
But in the end, many people worry about the circumstances of their house if they are filing for bankruptcy shelter.
After all, people need to know if their home is safe from the bankruptcy trustee and its court.
fundamentally there are 2 types of bankruptcy, and each one gives you the ability to keep your house or not.
If you are filing Chapter 13 bankruptcy, you will be allowed to keep your home and ownership of it provided that you can pay for the mortgage each and every month.
With Chapter 7 bankruptcy, there are other factors which can alter if you will be allowed to keep the house or not.
If you can afford to pay the month mortgage, and the equity in the home is exempt, you will be allowed to keep the home under Chapter 7 bankruptcy.
Is there a time when I should give up my house If the market value of your home is significantly less than the total liability that you have on the house, you should consider walking away from the house during your bankruptcy process.
There is no authoritative answer to this question, but if your house is not worth as much as you owed to the creditors, it just makes sense to walk away from it and stop the financial bleeding now.
This alternative might not suit everyone because if you do give up your house, you will still need an alternate place to live in.
Many people believe short sale can help A short sale of your house is by definition selling your house for less than what the total mortgage (primary/secondary mortgage, line of equity) is worth.
An example of a short sale goes like this: a house has a mortgage of $400,000 but the current market value of the house is much less than $400,000.
Short sale procedure begins when the homeowner submits a request to the lender to sell the home at a lower price.
If all the lender(s) approve a sale of $350K, then the $50K deviation is absorbed by the lenders and booked on their records as a loss.
Is short sale a better alternative than bankruptcy? If you are thinking of filing bankruptcy because you can no longer afford the mortgage on the house, then short sale is a chance and you would not have to declare bankruptcy.
If the lender is willing to accept the offer of the lowered price and take the short sale, you will come away from the entire process with no negative report on your credit history.
Short sale gives you the advantage of credit report free from any flaw and the ability to remove a heavy debt.
Nothing is free in this world, short sale has a negative side effect also.
When the lenders book a loss on their books, they will in turn issue a 1099 to you.
IRS has the form 1099 to suggest additional income has been achieved.
Going back to the example of the $400,000 house.
The lender took a short sale for $350,000 and actually lost $50,000 in the deal.
The lender then issue a 1099 for $50,000 to the mortgagee.
What this entails is that at the end of the year, from the IRS viewpoint, you effectively had supplementary income of $50K which you will need to pay tax on.
As you can see, short sale gives you the power to walk away from the home without having an infraction on your credit, with the disadvantage of having to pay for the taxes eventually.
Whereas through bankruptcy, you will be able to walk away from the home, granted that your credit will be ruined for the next 10 years.