SASHA KATZ, ESQ DAILY BLOG
QUESTION: Can I discarge my IRS taxes in a bankruptcy?
You can discharge (wipe out) debts for federal income taxes in Chapter 7 bankruptcy only if all of the following conditions are true:
1 - The taxes are income taxes. Taxes other than income, such as payroll taxes or fraud penalties, can never be eliminated in bankruptcy.
2 - You did not commit fraud or willful evasion. If you filed a fraudulent tax return or otherwise willfully attempted to evade paying taxes, such as using a false Social Security number on your tax return, bankruptcy can't help.
3- The debt is at least three years old. To eliminate a tax debt, the tax return must have been originally due at least three years before you filed for bankruptcy.
4- You filed a tax return. You must have filed a tax return for the debt you wish to discharge at least two years before filing for bankruptcy.
5- You pass the "240-day rule." The income tax debt must have been assessed by the IRS at least 240 days before you file your bankruptcy petition, or must not have been assessed yet. (This time limit may be extended if the IRS suspended collection activity because of an offer in compromise or a previous bankruptcy filing.)
Bank of America routinely denied qualified borrowers a chance to modify their loans to more affordable terms and paid cash bonuses to bank staffers for pushing homeowners into foreclosure, according to affidavits filed last week in a Massachusetts lawsuit.
"We were told to lie to customers," said Simone Gordon, who worked in the bank's loss mitigation department until February 2012. "Site leaders regularly told us that the more we delayed the HAMP [loan] modification process, the more fees Bank of America would collect."
In sworn testimony, six former employees describe what they saw behind the scenes of an often opaque process that has frustrated homeowners, their attorneys and housing counselors.
They describe systematic efforts to undermine the program by routinely denying loan modifications to qualified applicants, withholding reviews of completed applications, steering applicants to costlier "in-house" loans and paying bonuses to employees based on the number of new foreclosures they initiated.
The employees' sworn testimony goes a long way to explain why the government's Home Affordable Modification Program, launched in 2008 during the depths of the housing collapse, has fallen so far short of the original targets to save millions of Americans from being tossed from their homes.
ANSWER: Thank you for your question. It depends on the debt and for what purpose it was borrowed. If you borrow money from a unsecured credit card and the lender later settles or forgives the debt, you may have to include the cancelled amount in income for tax purposes. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Let's take a look at a very simplified example.You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
Call you CPA or tax professional. If you live in South Florida, feel free to call our office (954) 340-5310 for a referral.
If you do not pay your homeowner premium, your lender will obtain a forced place policy. The policy may or may not cover contents. If the lender obtains the policy, you will be passed the bill; the forced placed policy will be more expensive than a policy you may shop for. Most homeowner's concern is that they will pay for insurance and it if does not work out to stay in the home, the money is lost. On the other hand, if you modify and are current with the premium, you will not have to pay back any hefty amounts to the lender. The short answer is that if you plan to keep your home, paying for insurance out of pocket may be a good idea. Please note that if you have an escrow account for insurance with your lender, it may be hard to obtain insurance independently.
Mr. Obama insisted the government should help only responsible borrowers, and his administration offered aid to fewer than half of those facing foreclosure, excluding landlords, owners of big-ticket homes and those judged to have excessive debts.
He decided to rely on mortgage companies to modify unaffordable loans rather than have the government take control by purchasing the loans, the approach advocated by his chief political rivals in the 2008 presidential race, Hillary Rodham Clinton and John McCain.
The administration did not push for legislation to make mortgage companies help borrowers. The financial incentives it offered were often insufficient. And it responded slowly to warnings, including those in letters homeowners sent to Mr. Obama, that companies were not cooperating.
The result was a plan that failed to meet even its own modest goals, data shows. Mr. Obama said in Arizona a few weeks after taking office that the government would help “as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.” As of May, 4.3 million people had applied for aid, but only one million had received government-sponsored modifications, according the the most recent data. About a third of those turned away lost their homes, were facing foreclosure or filed for bankruptcy.
In June 2011, Mr. Obama conceded that his administration had not done enough. And so, we are going back to the drawing board.
Many clients come to us after they have accepted a modification, but they can't keep up with the payments. If you have a Fannie Mae or Freddie Mac loan and you default within the first twelve months of the modification, you are likely barred from obtaining another HAMP modification for some period of time. If you have obtained an in-house mod from your lender, it will be up to the lender whether they will consider a new modification.
Review your financial condition and weigh your options with a legal represenative. This can be done in the office ot over the phone (954) 340-5310. We'll schedule a 15-minute review of your financial so we can better assess your financial position.
There are good answers to your negative equity problem. The first question to ask is . . . Can you chip away at your loan balances?
Second Lien or Line of Credit Negotiation: If you are in a position to make a one-time lump sum payment, then you may consider settling a second mortgage or line of credit. Often times, eradicating the second lien through paying a lump sum in exchange for release of the mortgage and waiver of deficiency is the answer. If you can wipe out the second lien for less than the full balance due, you may get back to equity or at least a breakeven point.
Loan Modification: Another option to chip away the underwater amount is to request a principal balance “reduction” through a loan modification. I quotate the word reduction because the most common programs do not reduce the principal balance, but recapitalize the loan over 40 years so that you can enjoy a lower payment with a lower, fixed interest rate. So, how does that chip away at a loan balance? Well, if you are committed to over paying and reducing the term, you actually have created for yourself the ability to pay down principal.
Short Sale: If you don’t have a lump sum to settle a second mortgage or line or credit and you don’t want to go through the long, tedious process of modification, there is yet another powerful answer to eradicating negative equity. The answer is short sale. Short sale is a fairly quick and painless means to eliminate, not just the negative equity, but the entire loan. If your sights are set on waiver of deficiency and the price tag associated with walking away debt fee, short sale is an intelligent alternative. For over ten years, Sasha Katz, Esq. has been working out client’s debt and real estate matters. Short sale is one of the most active practice areas at the law firm. If you are thinking about resolving your negative equity issues, be sure to call me at (954) 340-5310 to schedule a free consultation. There is no better way to fight the Elephant in the Room, than to address it full on.
The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and U.S. Attorney for the Western District of New York William J. Hochul, Jr., today announced that Lori J. Macakanja, 35, of Dunkirk, New York, who was convicted of mail fraud and theft of government money, was sentenced to 72 months in prison and three years supervised release by U.S. District Court Judge Richard J. Arcara. Judge Arcara also ordered the defendant to pay $298,639 in restitution to the victims.
Assistant U.S. Attorney Trini E. Ross, who handled the case, stated that Macakanja, in her capacity as a housing counselor employed by HomeFront, Inc., inappropriately requested money from clients. The defendant told HomeFront clients that the money would be used toward loan modifications to prevent foreclosure on their homes. However, after receiving the funds, Macakanja used the money for her own personal use, including gambling, and failed to obtain the loan modifications for the victims.
A total of 136 HomeFront clients were defrauded with losses totaling approximately $300,000. In addition, Macakanja also obtained federal grant monies from the Buffalo Urban Renewal Agency (BURA) for HomeFront clients. On two occasions, she diverted $2,000 worth of BURA money to pay her own personal mortgage.
According to the experts, the average American will go into debt $750 this holiday season. This does not tell us how much each American will likely spend in TOTAL. This tells us approximately how much debt each of us will incur - - $750.
Given the housing market, state of unemployment and reduced incomes, I am puzzled by these statistics. From time to time, we all incur debt. A new tire after a nail punctures the old one . . . Air conditioner replacement in the heat of a Florida summer. It is one thing to incur debt for an unexpected necessity. It is another matter entirely to willingly charge it up for gifts.
Why do I say this? Not because your kids would not be thrilled by a new IPad or guitar lessons. I say this because, come Spring time, American Express and CitiBank (and the other creditors) are going to blast you with rates that even the Mafia doesn't charge. You probably already know that you are going to spend about $4,100 in interest to pay off your holiday shopping. Why do it? Save the interest for Disney World next summer.
I am not a grinch. Please CELEBRATE with your family this season. Set out to be creative with your holiday giving. Carve a plan that does not include paying Capital One and Discover five times the price of the holiday gift. Don't get me wrong, our office has a strategy for dealing with greedy creditors, but we'd much rather see you with the money in your pocket in the first place.
While a quick fix may sound like a good idea, the long haul is usually the better route. In loss mitigation, whether modification, short sale or deed in lieu, the path from A to B is not always a straight line. However, it does not have to be a bumpy road in vain.
The nuts and bolts of it is that there is a debt that needs to be dealt with. The tools to resolve the debt may include foreclosure defense, strategic default or court mediation to name a few. Over the time line of the debt, tools that were initially unuseful may become essential and vice-versa.
For example, a presuit mediation, where there have been few missed payments and no litigation, may be unsucessful. However, add six months of foreclosure defense and good proof of borrower income, you may settle with a reasonable monthly payment and a long term plan for negative equity.
The bottom line is that if you can overcome the daily gnawings of stress as you venture through loss mitigation, you may find your situation resolved with surprisingly good terms. Stay the long haul - - it is usually worth it.
SIGTARP SHUTS DOWN 85 ONLINE MORTGAGE MODIFICATION SCAMS
ADVERTISED ON GOOGLE
WASHINGTON, DC - The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) today announced that it has shut down 85 alleged online mortgage modification scams that prey on vulnerable homeowners through Web banners and other Web advertisements. SIGTARP investigates mortgage modification schemes in which companies charge struggling homeowners a fee in exchange for false promises of lowering the homeowner’s mortgage through TARP’s housing program known as the Home Affordable Modification Program (HAMP). Google, in cooperation with an ongoing criminal SIGTARP investigation of these scams, has suspended advertising relationships with more than 500 Internet advertisers and agents associated with the 85 alleged online mortgage fraud schemes and related deceptive advertising.
That's a common question and it depends on whether you plan to keep the property or short sale. As to your unpaid escrows (tax/insurance), your lender will not have sufficient funds to pay due to missed mortgage payments. Some clients decide to obtain insurance on their own so the lender does not force place insurance. Force placed insurance is much more costly than insurance obtained by the homeowner. However, any payments you make could be "lost" if you decide to short sale in the future.
By Jane Hodges
The U.S. foreclosure rate has climbed to its highest level in seven months, suggesting that lenders are moving beyond a "robo-signing" scandal that had temporarily slowed bank takeovers, according to a private firm that tracks the activity.
Foreclosure filings — including default notices, scheduled auctions, and bank repossessions — were issued on 230,678 homes in October, up 7 percent from September but 31 percent below the level of October 2010, according to the report issued by RealtyTrac Thursday.
RealtyTrac CEO James Saccacio said the uptick represents more "unclogging of the pipeline," as foreclosure activity suppressed by the robo-signing scandal eases its way out of the system and the process reaccelerates. Many lenders and servicers were forced to slow or halt foreclosure activity after revelations of the improperly signed documents.
"We expected this uptick to occur, since the pipeline was 'suppressed,' so to speak," Saccacio said in an interview.
Foreclosure auctions scheduled in October rose 8 percent from September but were down 38 percent from this time last year. Auction activity was notably higher in Florida (57 percent), Minnesota (43 percent) and Illinois (38 percent), but those states' activity levels were still lower than in October 2010.
Lender repossessions rose 4 percent in October but remained 27 percent below October 2010 levels. Major increases were seen in Michigan, Oregon, New Jersey and Indiana.
Here is RealtyTrac's September "heat map" of foreclosures. We'll update it when we get the October map.