Due to the increase in property values during the era, many Americans refinance or obtain a second mortgage, depleting their equity. Now that the real estate market has almost completely collapsed, individuals are underwater on their mortgages and pondering their exit strategies. Those who have been foreclosed upon and have a second mortgage are often unaware that even though they have returned the property to the bank, the second trust deed holders may pursue unsecured claims against the debtor. Many homeowners are unaware that they may be resting on a time bomb, particularly if they own additional properties that could be connected.
Typically, if the debtor is pursuing a bankruptcy filing, the lender will sell the debt to a collection agency that will harass the debtor through unscrupulous means. If the lender does not sell the debt, they may file form 1099C with the IRS, causing tax issues for the debtor in the amount of the deficiency.
Depending on the debtor's circumstances, a homeowner who is upside down on their mortgage and has other assets to secure should consider filing for bankruptcy to stop the creditors' antics. A bankruptcy attorney would be able to discuss the available options with the debtor and ideally arrive at a satisfactory resolution. The debtor could register for bankruptcy under Chapter 7 or Chapter 13, but this must be done prior to the foreclosure sale. A Chapter 7 bankruptcy is ideal for a debtor who does not have a substantial quantity of other assets to safeguard and simply wishes to eliminate future liabilities. Alternatively, the individual may file for Chapter 13 bankruptcy and propose a plan of reorganization that includes the surrender of the residence to the first and second trust deed holders. This is effective for debtors who wish to safeguard their assets while avoiding tax liability.
If the debtor has a substantial income, the Chapter 13 repayment plan can be as high as 100 percent. This is advantageous for individuals who do not have a substantial quantity of unsecured debt and whose majority of debt is secured by the underwater property they wish to surrender. When it comes to avoiding foreclosure, Chapter 13 bankruptcy is a highly effective tool. Chapter 13 bankruptcy can be complicated and requires the assistance of an attorney. Numerous attorneys specialize in Chapter 13 and foreclosure.
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