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socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33557
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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Does filing bankruptcy avoid taxes on short sale and forclosure

Customer Question

Does filing bankruptcy avoid taxes on short sale and forclosure differences in sale and amt owed?
Submitted: 3 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 3 years ago.
Yes, if (1) you file bankruptcy on the debt before the date displayed on the 1099-C evidencing the discharged loan balance from the lender for the unpaid loan balance, or (2) if your total personal liabilities exceed your total personal assets on the date displayed on the 1099-C (i.e., you are "insolvent").

There are several other possible rationales, but the above-two are the most frequently used. See IRC 108(a).

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33557
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 5 other Bankruptcy Law Specialists are ready to help you
Customer: replied 3 years ago.
if iam on longterm disability from chicago fire dept, not claiming that on my taxes, my primary home, expenses on paper look like one big debit. but i do receive money that meets my bills except for the deliquent investment property. would in ur opinion, i be considered "insolvent" everything i own is 10 years old but to have 80 thousand in equity in primary home which is in a property trust with my 2 sons
Expert:  socrateaser replied 3 years ago.
Your longterm disability is an asset with a discounted present value based upon the expected length of your disability. That could be a very large number. Example: if you are permanently disabled and have a life expectancy of another 15 years, then at present interest rates (1.25%), if your disability pays $1,000 per month, then the present value of that income stream is about $71,500. Added to your equity, you have about $150,000 in assets. If your liabilities are not at least that much, then you're not insolvent.

You need to sit down with a CPA and work through the numbers, so that you know exactly where you stand, because I'm just guessing here.

Hope this helps.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33557
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 5 other Bankruptcy Law Specialists are ready to help you
Customer: replied 3 years ago.

disability then being non taxable as annual income is still considered an asset

 

Expert:  socrateaser replied 3 years ago.
To be clear, if your disability insurance payments were covered in any part by your employer, then the benefits are taxable. So, be careful here. If you paid for the entire cost of your disability insurance, even out of payroll deductions, then the benefits are not taxable.

Regardless, the benefit is an asset and it is includable in the calculation of insolvency.
Customer: replied 3 years ago.

 

 

is there any time frame that is required when filing chap 13.. before, during, or after the bank has taken your investment property in forclosure. before, during or after the final bank sale of your forclosed investment property....

 

is there any time during forclosure process that you can miss the window to file chapter 13

Expert:  socrateaser replied 3 years ago.
Morning. Sorry for the delay, I was working late.

You must file bankruptcy before the date of cancellation appearing on the creditor's form 1099-C.
Customer: replied 3 years ago.

will I know the year or date when the will issue a 1099c i figure it comes after court dates with the bank or is it after the bank sells the property after they forclose

 

also.. on an isolvency worksheet I have a 457b retirement account fro a government sourse an is supposedly non touchable.. do i have to include this as an asset?

 

Expert:  socrateaser replied 3 years ago.
The bank can't issue a 1099-C until after the foreclosure sale. Legally, the bank is supposed to make reasonable efforts to collect before cancelling the debt. However, if you're trying to time the bank's actions, there is no means of doing so. The only way to absolutely avoid the risk of missing the window is to file for bankruptcy before or immediately after foreclosure.

Re a 457(b), if you are vested in the principal amount, then that is an asset with a discounted present value, as described in the previous example.
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 33557
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and 5 other Bankruptcy Law Specialists are ready to help you
Customer: replied 3 years ago.

at the forclosure... does the debtor know how much the bank will try to sue you for

personally and how much they are cancelling at that point.

 

 

also if u are filing chapter13 right after the forclosure.. and you cant afford to pay off the amount in five years.. does the judge lower the amount due to fit you budget??

 

thanks for your help along this thought process I will take care of you today

Expert:  socrateaser replied 3 years ago.
Court decides the deficiency amount after sale. The amount is the difference between the loan balance and the fair market value of the property on the date of sale. This is typically the sale price, but not always.

Re filing Ch. 13, the debtor proposes a plan under which all his/her disposible income (see Official form 22C) is applied to the debtor's obligations. As long as the debtor makes the payments, then no matter what the value of the debts, they are discharged at the completion of the plan (3 or 5 years, depending upon the debtor's income being below or above the state median).

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