Asian Journal- The Filipino-American Community Newspaper

IF you are currently facing foreclosure, perhaps you are curious as to whether filing for bankruptcy can help your situation. Maybe you have tried and failed with all other options and are now looking at bankruptcy as a last resort. Can bankruptcy really help?

Contrary to all the negative things that you may have heard about bankruptcy, it may actually be the solution that you need to help you keep your home. If you’re already behind on your mortgage payments and the lender has filed a Notice of Default against your property, you may have very limited time to act especially if your lender is not being cooperative in working out a resolution. Filing bankruptcy (Chapter 7 or Chapter 13) automatically stops the foreclosure by directing your lender to immediately cease all collection activities. In order to continue with the foreclosure after being notified of a bankruptcy filing, the lender needs to get court permission to do so.

Chapter 13 (debt consolidation) bankruptcy allows you to pay off the "arrearage" (late payments) over a period of 3 to 5 years. If you have other debts such as back property taxes, credit cards, IRS debts, student loans (and all other types of debts), these can also be included in your Chapter 13 repayment plan. In most cases, most debts are drastically reduced (example: credit cards and other unsecured debts). The end result is lower and more affordable debt payments every month. By consolidating debts, most people find that it becomes easier to make their mortgage payments. To qualify, you need to have enough income to cover your regular mortgage payments plus your monthly Chapter 13 plan payment.

Chapter 7, on the other hand, will not stop a foreclosure but it can delay the process by several months. This can give you additional time to work things out with your lender. If you have already decided to let your house go, you can live in your home for free during at least some of the months that your bankruptcy case is pending and thus allowing you to save money that you need for moving expenses. Where a homeowner faces after-foreclosure liability (example: liability for a second mortgage loan on the property after the first trust deed holder forecloses), Chapter 7 can also wipe out such liability. (Note: Most homeowners are not aware that they can still be liable for an unpaid 2nd mortgage loan even after foreclosure. The law provides some protection against this in certain cases but this is NOT always the case. See a competent bankruptcy lawyer for advice if you are one of the homeowners I described above.)

Lastly, in cases where the borrower has possible debt-cancellation income which could result in a tax liability (example: a bank forgives a debt otherwise collectible against the borrower but reports the cancelled amount as "income" on a 1099), Chapter 7 bankruptcy may be your best way to get out from under your mortgage debt and tax liability at the same time. This is because a debt that is wiped out by a bankruptcy is excluded from income and is not taxed. If the expected cancellation-of-debt income is substantial, this alone could be a good reason to file Chapter 7. Recent laws were passed to protect most homeowners from this tax liability but in certain cases, these laws do not apply (example: the loan was secured by rental property). Tax laws are complex and situations vary so if you are in doubt as to possible tax liability in your case, seek the advice of a competent tax professional.

If you want to explore the possible benefits of Chapter 13 or Chapter 7 bankruptcy protection, we would be glad to help you evaluate your options. To schedule a free office consultation, call us Toll-Free at 1-866-477-7772. We have offices in Glendale, Cerritos and West Covina.

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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped more than 4,000 clients in finding solutions to their debt problems. To schedule a free attorney consultation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.

( www.asianjournal.com )

( Published on April 4, 2009 in Asian Journal Los Angeles p. B2 )