Bankruptcy laws are intended to give debtors a fresh start.  Prior to the great recession a typical bankruptcy filer was a person or couple with serious debt arising from medical expenses.  The number of bankruptcy filers has increased drastically in the last few years, because of the poor economy.  A lot of these debtors got into trouble buying speculative investment property.  There are many debtors that bought one or more houses they were holding on speculation.  A few debtors bought several homes and some took a lot of equity out of their overvalued properties and used the debt to purchase investment property, cars, boats, Rvs and other big ticket items.

    Homeowners where then surprised to get a tax bill after losing their home in a foreclosure.  As a result a law was enacted to allow homeowners to avoid the penalty, but still there were some home owners that were getting taxed following the foreclosure of their home.  These homeowners were getting taxed, because the money was not used to purchase a principal home.  Usually these were home equity loans that were used to purchase big ticket items or the investment property.  Worst of all some of these homeowners were surprised to find that after a foreclosure lenders were aggressively trying to collect on the debt owed on their junior loans.

    Bankruptcy has been used as a tool to avoid many of these problems and also to save a homeowner that has fallen behind on the mortgage payments as well as homeowners with homes that have lost a lot of value.  In a Chapter 7 bankruptcy proceeding the surrendering of property is a non taxable event and the entire debt is discharged.  So the homeowner will no longer owe the first, second, or third.  All the debt is discharged in the Chapter 7 proceeding.  A Chapter 13 bankruptcy proceeding allows a debtor to catch up on home mortgage payments while setting other debts aside, and then after catching up begins paying the other debts until five years expire or the loans have been paid back.  

    A Chapter 7 bankruptcy also allows homeowners to keep their homes and discharge the other debts.  In many instances that is a very favorable result to the debtor that needs just a little breathing room from heavy credit card debt.  A Chapter 13 bankruptcy requires repayment of the debt, but the amount of repayment is based on income, higher income levels require higher repayments.  A Chapter 13 allows a debtor to get rid of junior liens on their home when the value of the home is insufficient to pay anything on the junior liens.  A home worth 100,000 with a first of 120,000 and second of 80,000 would allow the debtor to get rid of the second loan after completing a repayment plan afer five years.  In many instances the homeowner ends up paying 20 cents on the dollar and the debtor gets to keep his home.

    There are many exceptions to the rule and the law varies from circuit to circuit, but generally speaking bankruptcy is often an option that does exactly what bankruptcy was intended to do -a fresh start.

We LOVE you so.. how about liking us on Facebook?..

Powered By Facebook Like Post Plugin

Visit http://quicksitemaker.co.uk for top notch web design Glasgow

Tags: bankruptcy, debt, homeowner, mortgage