It's no secret that the explosion of the American housing bubble caused a financial tsunami, resulting in the greatest number of foreclosures since the Great Depression. The sharp decline in home prices left many homeowners underwater, unable to keep up with mortgage payments because of unemployment or medical costs, resulting in the necessity to either sell short or lose their homes through foreclosure. Often, these options lead to deficiency judgments which in turn are either immediately preceded or followed by bankruptcy filings.
Almost 900,000 homes were lost to foreclosure last year, translating to one in every 54 families nationwide. At the same time, there was a 32 percent increase in bankruptcies during 2008. Of these, 28 percent were Chapter 13 filings, most directly related to mortgage problems. Overall, those who keep track of these things say that there have been close to 12,000 bankruptcy filings per million American households.
We know that bankruptcy wipes out debt caused by foreclosure in non-recourse states, but those who live in these states must educate themselves on the anti-deficiency statutes in their particular state. Some of these non-recourse laws apply only to the original loan that was used to buy the property and consider second mortgages and home equity financing to be recourse loans which are expected to be repaid. Additionally, some states allow lenders to go after a borrower for the difference between the debt and the current fair market value of the home, an amount that can also be taxed by the Federal Government.
The Mortgage Debt Relief Act of 2007 states, in part, that even if a debt is forgiven, the unpaid amount is considered taxable income. However, the act makes an exception to this rule if the case involves the debtor's principal residence. It also exempts debts due to insolvency and when discharged through bankruptcy. However, it is well to keep in mind that every state makes its own rules and regulations concerning foreclosures and bankruptcy, so talking the situation over with an attorney who specializes in these areas is the wisest course for any troubled homeowner.
In short, although bankruptcy often seems like an unpleasant choice and may do significant damage to one's credit rating, it is frequently the best option for dealing with foreclosure and is becoming common enough to be the norm rather than the exception in these shaky financial times. When facing foreclosure, consultation with a bankruptcy attorney should always be the first step out of the morass of a personal economic crisis.
Author Resource:-
Stephen Daniels is an acclaimed SEO 2.0 researcher of best practices, products, and services for a wide variety of industries. For an experienced and professional Portland bankruptcy attorney , he highly recommends Aurora Law Office.
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