Q: Declaring chapter 7 before foreclosure
My house - supposedly worth around $900,000, will not sell. I have tried for 5 years and am still trying. We stopped paying the mortgage in 2019. i believe they will start the foreclosure soon. We also have $46,000 credit card debt that my husband stopped paying August 2019 in Ct so they have until Nov. 2022 to sue for it. We would pass means test for chapter 7 based on income easily but since we are not paying the mortgage it is going to look like we have disposable income. Once we are paying rent more than 50% of my income will be going towards rent but that won't be reflected on schedule J so how do I declare bankruptcy before the foreclosure and eviction? Or, if it forecloses, will I have to pay taxes on $80,000 heloc if I do not declare bankruptcy first? I can't afford that or a payment plan as I have parent plus loans that will start repayment and a tax repayment plan and student loans would leave me with no money left over. I don't know how to get out of this situation.
A:
As it appears you are both eligible for Ch. 7, and desire to do so, make an appointment with a CT bankruptcy lawyer who will answer all your questions.
There is a specific tax code provision pertaining to bankrupts, saying basically if you emerge from bankruptcy without significant assets, you will not be taxed on the debts discharged.
Again, meet with a local bankruptcy attorney who can address all your concerns and correct you misunderstandings.
A: You need to consult with CT bankruptcy attorney who can help you prepare and file your petition and schedules. Since you are still in house your current mortgage payments can be included in your budget despite fact not being paid.
A: (Noticed another issue) If you owe income taxes upon tax returns filed more than two years and four months prior to the date you file your bankruptcy, those taxes (your "tax payment plan") are dischargeable.
A:
As a general rule, filing a bankruptcy will eliminate all of your debts. There are exceptions (student loans, for instance), but none of the other debts you've listed will survive the bankruptcy. Further, there will not be any tax consequences emerging from your bankruptcy discharge because debt discharged by bankruptcy is specifically excluded from the IRS' definition of "income" (26 U.S.C. Sections 61 - 62). Also, it'd be a lot more strange if you could afford to pay the mortgage on a $900K house and you were looking to file for bankruptcy...
In other words, you're clear to file. You'll probably want to do so sooner rather than later, because 1099-C's can be more difficult to exclude from gross income if they're issued prior to the bankruptcy filing.
Good luck with your case!
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