My home has been foreclosed or is about to be foreclosed upon and I do not want it back/ want it back, should I file for bankruptcy?

avoid home foreclosure

Maybe, depending on the advice of your bankruptcy attorney.

When a home is foreclosed upon in Texas, it must be sold at public auction on the Court house steps. This is true for judicial and non-judicial foreclosures alike.  Judicial foreclosures (rare) require an added step of receiving a Judge’s blessing before it is posted.   All foreclosure sales occur on the first Tuesday of every month on the Court house steps.

A public auction usually results in a sell that is significantly less than the value of the home versus if it were sold through traditional means.  This means that most Debtors who have a home foreclosed will owe what is called a deficiency balance.  This balance is the difference between what the home sold for at auction and what is owed to the Creditor on the note that was signed by the Debtor.  This amount can often be significant.

In a bankruptcy proceeding this amount is treated as an unsecured claim, like a credit card. These amounts can be discharged in a Chapter 7 Bankruptcy without repayment presuming the Debtor qualifies for a Chapter 7 case.  This amount can be discharged in a Chapter 13 Bankruptcy as well.  Depending on the Debtor’s situation, income, and expenses, the creditor owed money for the foreclosed home may receive some distribution on their claim in a Chapter 13 Bankruptcy.

There are also tax implications for the foreclosure of a home.  The Creditor is required by law to issue a 1099C (Cancellation of Debt) upon foreclosure of a person’s home.  This creates a situation where significant tax debt can be owed to the IRS.  The IRS treats a 1099C as additional income and taxes are owed on this “income” accordingly.

A Bankruptcy can stop this being treated as income by the IRS.  Once a bankruptcy has been filed a Debtor files form 982 along with the tax return for the year that the 1099C was issued.  This can either be done on a first filing of the tax return or a tax return can be amended and a refund sought or reduction of the tax debt sought.

For a more detailed analysis of your situation please contact our office and one of our attorneys can meet with you and discuss your options relating to a repossessed vehicle and any other credit issues that you may have and help you formulate the game plan that fits your needs best.


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