What Should You File First – Foreclosure Or Bankruptcy?

What Should You File First – Foreclosure Or Bankruptcy?

You will likely procure more if you consider filing for bankruptcy before the foreclosure takes your home away. However, this will help you stop the creditors from winning a deficiency judgment. You will also be allowed to continue living in your house much longer than if you had allowed the foreclosure take place first and then filed for bankruptcy.

Get reading to learn more as to the reasons why filing bankruptcy in Dallas before foreclosure make an ideal decision – Recognizing foreclosure deficiencies If your house was sold at a foreclosure sale, the grand total owed on your current mortgage might have exceeded the foreclosure sale price. The only difference between the grand total owed on your current mortgage and the sale price is a deficiency.

For instance – Let’s just say you are indebted to your mortgage lender for $200,000, however your house is sold for merely $150,000 at the very foreclosure sale. Here you suffer the deficiency of $50,000.

Apropos, you will probably want to note that certain states restrict the deficiency to the variance between the collective debt and your house’s fair market value. If the fair market value of your home’s was $175,000, $25,000 would have been the limitation for a deficiency.

Deficiency judgments and foreclosure It’s all about whether or not your creditors can manage a deficiency judgment based on your state law.

Certain states forbid creditors from charging their defaulter for a deficiency in certain situations, such as if their mortgages were secured by their principal residence. While in some states, the creditor can choose to chase their defaulters for the deficiency, demanding a personal judgment against them.

The creditor has to sue you for deficiency judgment In a majority of nonjudicial foreclosure states (i.e. where foreclosures happen without the court’s approval) and in some judicial foreclosure states (i.e. where foreclosures happen with court’s approval only), only a creditor can get a deficiency if there’s a lawsuit filed against the defaulter.

Filing for bankruptcy to dodge a deficiency judgment

If your creditor charges you for deficiency, and later you file bankruptcy, the bankruptcy (if processed through successfully) will discharge your deficiency debt. However, for most people, filing for bankruptcy before foreclosure makes more sense as it preventively eliminates their mortgage debts.

You are, then, left to relax knowing that there’s a chance for you to get a deficiency judgment. This will give you peace of mind since you no longer have to face any lawsuit filed by a creditor to get deficiency post foreclosure.

In case you are already facing foreclosure, you will want to decide, not only if you wish to fight it, but also if it is worth consulting a bankruptcy or foreclosure lawyer to help you through. And, for most cases, hiring an attorney is highly advised. For instance – if you are able to put up a considerable defense to your foreclosure and also, wish to keep your house, you must seek professional assistance from an attorney. Situations in which you will probably not have to consult an attorney is when you plan to stay inside the house (payment free) throughout the foreclosure process. Now, if the state you live in has a law to prevent the creditor from recovering a deficiency judgment, it does not apply to your case.

Filing for bankruptcy to shun the tax liability for excused amount One more reason to file for bankruptcy before foreclosure is if your creditor forecloses and also cancels your deficiency debt (instead of seeking deficiency judgment), you perhaps have to take in the annulled amount on your tax returns as income. Let’s say, it has happened already, now you have to pay tax on that exempted debt unless you qualify for the following exceptions: The Mortgage Debt Relief Act of 2007 Exception The federal Mortgage Debt Relief Act of 2007 disregards from taxable income forgiven debt which was:  

Withdrawn to purchase, significantly improve or build the principal home, and Secured by the principal home

The highest amount of exempted debt one can claim under this Act is $2M (or $1M if you are married, however filing for bankruptcy individually). The very elimination applies to the debt exempted in 2007 through 2013, even though the Congress is, today, considering a bill which will likely extend this duration.

The Insolvency Exception If you’re an insolvent at the time your debt was annulled, some or all of your outstanding might not be taxable to you. You will be considered an insolvent if all of your liabilities account higher than the fair market value of your collective assets.

Eventually, if your creditor excuses the deficiency before you have filed for bankruptcy, and you are also not eligible for either of the exceptions, filing bankruptcy later might also not help discharge your tax liabilities.

On the other hand, if you went for bankruptcy before foreclosure, your mortgage liabilities would have been eliminated and you would also have not had any tax debt, because there are no more any exempted deficiency debts.

Bankruptcy eliminates other mortgage liabilities If there are other mortgage liabilities on your part, for example – a second mortgage, you are advised to file for bankruptcy before considering foreclosure, to eliminate your personal obligations for those debts.

When your first mortgage creditor eventually forecloses, your second mortgage debts (if any) are subsequently foreclosed, leading the creditors to surrendering the security interest in the property.

Typically, if your second mortgage debts are traded off along these lines, chances are the second mortgage creditor will personally sue you to recover the outstanding. But, filing for bankruptcy will discharge most of your debts that have been secured by your second mortgage and you can also avoid any potential lawsuits.

Bankruptcy allows you time for your property by shelving the foreclosure If you go for bankruptcy prior to foreclosing your house, it will buy you some time to continue living in the house. As soon as you file for bankruptcy, you’re issued an ‘automatic stay.’ This act of automatic stay prevents your creditors from their attempts to collect debts from you or enforce any liens.

Since the automatic stay has prevented your foreclosure from coming into effect, it buys you additional time in your home. However, the creditor enjoys the right to request the bankruptcy court to annul the automatic stay, which would allow them to keep up with the foreclosure process, however it is a long procedure. Meanwhile, you enjoy living in your home.

You get to save since the foreclosure is delayed You continue living in your house without paying any mortgages during the bankruptcy – at best, until your creditor receives relief from the automatic stay and also finalizes the foreclosure. Either way, it will take a few months, allowing you to benefit from the additional time that bankruptcy has bought you, by accumulating your savings. For example – if your monthly mortgage payment is $1,000, you will be able to save thousands of dollars since you are living in your home only and not making any payment in this period.

If you are considering filing bankruptcy, however, are facing foreclosure at the same time, your bankruptcy timing can make a difference here, based on what you are planning to do with your house.

In most cases, you should consider filing for bankruptcy first.

Conclusion If you are caught up in a dilemma as to what you should file first – foreclosure or bankruptcy – the answer lies with the experts only. Whether it is bankruptcy or foreclosure – both are significant

decisions. Upon consulting an expert, you will not only be assisted to reach a decision, but be helped and supported comprehensively throughout the process, until your case is closed.

Recovery Law Group – a widely trusted and experienced consumer protection law firm – makes an ideal choice here to review and provide professional assistance to your case. Choosing the right affordable bankruptcy Los Angeles-based attorney is as important as to making a wise decision. When you work your bankruptcy/foreclosure case in collaboration with an experienced and renowned attorney, chances for you to do the right thing evidently increase.

Hence, whether you want to sit for a meeting in-person or a telephonic consultation – call 888-297-6203