• ‘Hidden Time Bomb’ Could Leave Thousands of Homeowners with Hefty Tax Bill

    We mentioned on Wednesday that one benefit of filing Chapter 7 bankruptcy is the elimination of tax liability on a mortgage deficiency. However, the Los Angeles Times reported on September 7, 2012, that many struggling homeowners could be facing a very unwelcome bill next year. When Congress passed the Mortgage Debt Forgiveness Act in 2007, the legislation forgave debt for declines in homeowner’s financial conditions or drops in home values. However, the Times noted that the exemption-as much as $2 million per household in principal reduction and other aid from banks-is currently set to expire at year’s end. As a result, the homeowners who obtained reductions in in their mortgage debt could receive a bill for taxes on that aid.

    “The expiration of that provision is a hidden time bomb,” Representative Jim McDermott told the Times.

    As the Times noted, mortgage debt forgiven by a bank as part of a principal reduction, short sale or foreclosure needs to be reported as income by the homeowner and is subject to taxes. Furthermore, nearly 140,000 homeowners who received some type of relief under the $25 billion foreclosure settlement reached last year with the nation’s five largest banks could also find themselves owing taxes. According to the Times, a middle-class household would owe 25 percent taxes on that relief. With the relief averaging about $76,615 for each household, the Times said the taxes would be around $19,000 for the average settlement relief so far. Additionally, the Times said the tax “would go up if the relief pushes the homeowner into a higher tax bracket or if the Bush tax cuts expire, as they are set to do at year’s end.”

    If you are among the thousands of Illinois homeowners who are in desperate need of foreclosure help , it is in your best interest to take action immediately. Our Chicago bankruptcy lawyers can help you determine whether Chapter 7 or Chapter 13 bankruptcy provides you and your family the most relief, and we can get started as soon as you complete the form located on this page or contact our firm at (866) 930-7482.

    Benjamin Brand Services – Chicago bankruptcy attorneys

  • Foreclosure Filings Increase Nearly 150 Percent from Last Year

    The Chicago Sun-Times reported on September 13, 2012, that Illinois had the highest foreclosure rate in the country in August as foreclosure filings going through court were up 148.6 percent from a year ago. This was the first time that the Land of Lincoln led the nation in foreclosure filings since the real estate information company started issuing monthly reports in January 2005. The Chicago Tribune reported that compared to August 2011, default notices were up 18 percent, bank repossessions rose 41 percent and notices of scheduled foreclosure auctions increased 116 percent.

    These alarming numbers came on the same day that the Federal Reserve announced it would be buying $40 billion of mortgages a month in a move that some analysts believe could help lower mortgage rates by another quarter percentage point. That news was good for people buying homes, but it could also be really good for homeowners looking to refinance.

    However, refinancing is easier said than done. If you are one of the thousands of Illinois homeowners currently seeking foreclosure help and refinancing is not an option, you should know that filing Chapter 13 bankruptcy may be able to help you catch up on late payments you missed-and possibly let you keep your house. In Chapter 13, as long as you have a regular source of income, you could enter a three- to five-year repayment plan that reorganizes your debt.

    There are two main benefits to filing Chapter 13 bankruptcy if you are facing foreclosure:

    • Mortgage arrears can be worked into your plan – If you are several thousand dollars behind on mortgage payments, that mount will be worked into your plan and paid back over the course of between 36 and 60 months. You will be current on your mortgage once you complete your plan, and your unsecured debt such as credit card bills or medical expenses will be discharged as well.
    • Lien stripping – The downturn in the housing market has left many homeowners “underwater,” or owing more than their home is worth-and the economic effect is even worse for families with second or third mortgages. Lien stripping involves removing a second mortgage or home equity line of credit and lets you pay back only the first mortgage if your home is worth less than the balance due on your first mortgage.

    Chapter 13 bankruptcy can be tremendously beneficial for families that are eligible, but not all homeowners have the income necessary to make such a plan work. In our next blog post, we will discuss some of the benefits Chapter 7 offers homeowners facing foreclosure.

    If you are interested in filing Chapter 13 to try and save your home, time is of the essence. The plan only works if you file before the foreclosure sale occurs. Take action today by filling out the form on this page or contacting our firm at (866) 930-7482 to let our Chicago bankruptcy lawyers help.

    Benjamin Brand Services – Chicago bankruptcy attorneys