Bankruptcy, Foreclosure, and Tax Ramification FAQ's: - What impact do foreclosures and bankruptcies have on credit?
o Foreclosures and Bankruptcies should be avoided at all costs. Both can remain a negative on your credit for at least 10 years, but will remain with you for life. Because of the severity of bankruptcy and foreclosure, both can cripple your chances of having many items we deem necessities these days including, but not limited to a new home loan, a car loan, a credit card, a gas card, an apartment rental lease, or even a job. The truth of the matter is most bankruptcy and even foreclosure situations can be avoided with proper advice and counseling. Please review our Bankruptcy and Foreclosure articles to learn more about these topics. - What impact do short sales have on credit?
o If the short sale was only granted a “release,” then there may be notation to the effect of “settled for less than originally owed,” and the lender has the option of reporting a “deficiency judgment.” However, if you are successful at receiving a “satisfaction,” then your credit report should indicate that the loan has been “paid to satisfaction.” Additionally, although a “paid” notation is better than the first option, both results are exponentially better than having a foreclosure or bankruptcy appear on a credit report. Don’t wait until it is too late, take action now and start negotiating a short sale before foreclosure and/or bankruptcy become inevitable. - What are the tax consequences of doing a short sale?
o In years past, a short sale would have given a property owner the ability to fend off bankruptcy or foreclosure by selling their property for less than they owed, but it also may have meant that the “forgiven debt” was treated as income and taxed just the same. However, our process is designed to give the property owner the best chances of succeeding at not only selling their property via a short sale, but also at receiving a “satisfaction” of mortgage, complete debt forgiveness, and no tax ramifications. Additionally, on December 20th 2007, President George Bush signed the Mortgage Forgiveness Debt Relief Act of 2007 which essentially states that most homeowners that have succeeded at a selling their property via a short sale will not be taxed on the forgiven mortgage debt. * It is important to note that we are not CPA’s and all tax advice should be verified with a trusted CPA.
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