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WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17224
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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Currently in the middle of a chapt.13 bankruptcy. My bank

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Currently in the middle of a chapt.13 bankruptcy. My bank has offered to forgive my home equity loan which is part of the bankruptcy. My question is, should I consider this or should I wait for the end of the chapt. 13 process to discharge this debt?

WALLSTREETESQ :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarification. 

WALLSTREETESQ :

Are you currently paying the equity loan through the chapter 13?

Customer:

I am currently making payments, I assume that part may go on the loan but will not come close to paying it off. Payments are only a very small portion of my total liability.

WALLSTREETESQ :

If the bank will forgive the loan, you would have to notify the trustee of the change and the money you pay into the plan may have to increase, as the equity payment now will go to the creditors.

WALLSTREETESQ :

If the equity lender will allow you to delay the matter until your chapter 13 is final that may help, but I would consider accepting the forgiveness now, and add the extra payment to your chapter 13.

Customer:

Is this true even if the loan will be normally discharged through the completion of the chapt. 13 process?

WALLSTREETESQ :

Yes, since if you stop paying the equity loan if you are currently doing so, that would increase your monthly income to pay your other creditors.

WALLSTREETESQ :

If you are not paying the equity loan in full and it is part of a plan, where you are paying only a small amount, you can advise the trustee about their offer, and then the trustee would not include them as a creditor, and your other debts would be paid a higher amount.

Customer:

I should add that the loan is unsecured.

WALLSTREETESQ :

yes you can do that, or if it is forgiven in full you can have their proof of claim dismissed, and they would not be paid at all.

Customer:

What are the possible tax implications?

WALLSTREETESQ :

The equity loan forgiveness will be considered income, however if they are listed in a bankruptcy then you would not owe any extra tax.

Customer:

Would having the bank forgive the loan amount have any affect of my credit?

WALLSTREETESQ :

It will appear on your credit as a charge off, but since it is already part of the bankruptcy it should lower your score.

Customer:

So it would have a negative affect? It sounds like I should just let the bankruptcy run its course and not take advantage of the offer.

WALLSTREETESQ :

If it is going to be discharged in full anyway, and you can keep up the payments, that is a good choice as well, as you would not have to worry about any tax issue or credit.

Customer:

Thank you for your advice.

WALLSTREETESQ :

Good luck, and if you have any further questions please do not hesitate to ask.


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