Foreclosure cannot be stopped immediately

Be aware of scams!

All the information you need for counselors can be found at the HUD website. Do not get involved with anyone who says foreclosure can be stopped immediately. This is either a scam or someone who wants you to file bankruptcy. Bankruptcy may be an option, but not until you are familiar with all your choices.

When should I consider bankruptcy?

Bankruptcy is controlled by both state and federal law. There are many articles on the subject. This is not one of them. However, if foreclosure is imminent, it might be wise to consult a bankruptcy lawyer. There are two possible benefits to bankruptcy. The first is that under bankruptcy, you may be able to eliminate the personal liability of a deficiency judgment - if one is permitted for your mortgage. Second, under bankruptcy, you may be able to restructure your mortgage payment to make up the back payments.

Halted foreclosure

In either case, you will be granted a temporary stay, in which the foreclosure proceedings will be halted. This can give you time to complete a pending sale or to come up with some other option to avoid the foreclosure. Bankruptcy is not the answer for everyone and may in fact be more damaging than the foreclosure. However, it is another tool to consider, and for the right person, one that can be of great benefit.

There may also be a tax consideration.

Example: You bought your house for US Dollars 200,000. You refinanced for US Dollars 300,000 and foreclosure has begun. You may have to pay tax on the US Dollars 100,000 over the purchase price as a profit, just as you might on a sale.

Attorney advice

Check with your counselor, attorney, or accountant. I say “may” and “might” in the example because there are circumstances under which you will not have to pay the tax.

New laws enacted because of the mortgage crises of 2007 have changed some of the IRS requirements to pay tax on loan forgiveness. New laws going even further are being proposed. Be sure to check with your tax adviser as soon as the possibility of foreclosure becomes an issue.

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