Do I have to pay tax on the “forgiven” or “cancelled” debt when I lose my home in foreclosure, sell it in a short sale or file bankruptcy?

Short answer is no, most likely. Normally, if someone you owe money to cancels or forgives that debt, the IRS treats the forgiven debt as income to you and that income is taxable. As with most rules and statutes, there are exceptions. One of those exceptions is if you discharged the debt in bankruptcy. In fairly recent years, another exception was created. That is the Mortgage Debt Relief Act of 2007. This Act generally allows you to exclude income from the forgiveness or cancellation of debt on your principal residence in certain circumstances. This includes debt reduced through mortgage restructuring,…

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Short sale or bankruptcy? That is the question.

Here in NJ, I rarely recommend a short sale to a debtor. In NJ, deficiencies are not waived automatically or by statute and the lenders often pursue debtors for those deficiencies. Rarely do I see a potential client whose only debt is the delinquent mortgage or mortgage they no longer can afford. I could see it happening, but it most definitely is rare. Also, there are so many short sales on the market, the chance of the home even selling or for a price the lender is willing to accept is rare also. if it does happen, it’s often many,…

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Can I be fired or lose my job for filing bankruptcy?

No, at least not legally.  Federal law 11 U.S.C. 525(b) is the section of the bankruptcy laws that prohibits your employer from firing you because you filed for bankruptcy or had debts that were dischargeable in bankruptcy. This applies whether you work for the government or a private employer. This law even prohibits your employer from firing you if the discharged debt is a debt owed to your employer (e.g. you work for Chase bank and have a Chase credit card that had a balance that you discharged in bankruptcy). What you need to decide is whether or not this…

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How badly will bankruptcy affect my credit score?

  Credit scores are funny things. The calculation is a mystery, as is some of the logic behind it. The formula is a secret of the companies who generate the scores. We know generally that if we pay our bills on time, our score will be better. If we do not, it will be worse. Other than that, we do not know for sure and there is much debate about how many things affect your score. Credit scores also are fluid. They go up and down almost constantly as our lives, including our credit lives, change almost constantly. The reason…

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Bankruptcy’s Benefits

When people think about bankruptcy, they do not get warm and fuzzy at the thought of it. Some fear bankruptcy. Some hate it. Some are confused by it.  Bankruptcy is not something we strive to achieve in life. It is not a goal or an aspiration. Unfortunately, many contemplating bankruptcy think of themselves as failures. I do not know anyone who thinks of bankruptcy and has happy thoughts. What those people do not focus on, and in my opinion should, are the many benefits that bankruptcy offers. As I have said in other posts, bankruptcy is a tool to achieve…

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