It’s December, and one thing that often happens this time of year is temporary tax code provisions that are designed to benefit homeowners expire. What’s more is that many homeowners’ mortgage payments are going to start to rise soon too, possibly creating financial difficulties. Both developments might force New York homeowners to consider filing bankruptcy.
On November 15, The Washington Post ran an article about the Mortgage Forgiveness Debt Relief Act of 2007, which was extended until January 2014. The act exempts debtors who have suffered a foreclosure from paying income tax on any forgiven mortgage deficiency. Normally, if a debt is canceled the former debtor must pay income tax on the forgiven amount, even if the income wasn’t literally received. They do this by filing IRS Form 1099-C when paying their taxes. Because the act is expiring at the end of 2013, future debtors will have to pay income taxes on forgiven mortgage deficiencies. Homeowners can also expect deductions for installing energy-saving improvements to expire as well.
Making matters worse, according to a November 26 article in Reuters, large numbers of home equity lines of credit (HELOCs) will start hitting their ten-year anniversaries. Many of these secondary mortgages were structured so that the debtors only had to make interest payments on the loans for ten years, after which they would pay principal on top of interest. “Typical consumers” can see their monthly loan payments triple. Reuters reports that 40 percent of HELOCs will enter their tenth year over the next four years, and the number of homeowners who miss payments on them can double at the ten-year point.
New York homeowners can take a few important points from these developments. One is that a short-sale that’s scheduled to close in 2014 will probably not be as easy as in those that closed in 2013 or earlier. Debtors may be better off forgoing a debt cancelation and instead opting for discharging their mortgage deficiencies in chapter 7. Similarly, homeowners with significant mortgage debts who expect their monthly mortgage payments to rise would be wise to talk to a New York bankruptcy lawyer to explore their options, especially if they believe they might fall behind on their debts. It might be possible to discharge an underwater HELOC and then strip the lien in a subsequent chapter 13 bankruptcy.
For answers to more questions about mortgages, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy law firm Bruce Weiner for a free initial consultation.
