Can I rebuild my credit after bankruptcy?
Absolutely, although bankruptcy is on your credit report for up to 10 years, with proper advice, you can begin to reestablish your credit immediately after your bankruptcy discharge. In fact, it is likely that pre-approved credit cards will arrive within weeks of a bankruptcy filing. We know how to help you improve your credit, get good rates, and avoid future problems.
Deficiency Judgments: Money Banks Seek After Foreclosure or Repossession
These judgments represent the money due when a foreclosure or other form of forced sale does not produce enough proceeds to cover the debt owed. Given the high mortgage and low real estate values in today’s market, deficiency judgments can be very large amounts, since they are overdue, they are immediately and fully enforceable court judgments.
In most Connecticut foreclosures you lose your house and still owe the bank for the remaining money borrowed, including interest, fees, costs and other bank charges. This is a disastrous result that is widespread throughout Connecticut and in the 40 other states that allow for deficiency judgments.
With real estate values at historical lows, deficiency judgments result from the vast majority of Connecticut foreclosures. It is rare that banks receive enough proceeds from forced and often slow sales to satisfy the large amount of mortgage debt, fees and costs that result from a foreclosure.
Unpaid or unsatisfied second mortgages and credit lines are also the personal responsibility of the borrower, even after a foreclosure.
Second mortgages and unpaid credit lines can be very large amounts that are due in full by suit, lien, attachment or other means of court collection. Avoiding personal liability for large second mortgage and credit line obligations requires experienced counsel with knowledge in all forms of debt relief, including filing for bankruptcy under the revised requirements for Chapter 7 eligibility and relief.
Tax Consequences of Short Sales and Deficiencies
Deficiencies resulting from refinances, second mortgages and credit lines can have disastrous tax consequences if any of the borrowings were not utilized solely for the purchase or the improvement of your house. These forms of debt cancellation create taxable income in the form of a 1099-C that can be very large. Proper preparation and experience under the means testing requirements of the new Bankruptcy Code can allow for the elimination of deficiencies in all forms of foreclosure or repossession while avoiding all of the otherwise disastrous tax implications.
How We Can Help You Avoid A Deficiency Judgment
Avoiding a deficiency judgment should always be pursued with the assistance of a highly qualified Connecticut deficiency judgment lawyer. There are three major ways to avoid a deficiency judgment in Connecticut. Two of the three require bank permission and assistance:
- Chapter 7: Through a properly prepared and conducted Chapter 7 case, the U.S. Bankruptcy Code protects you by discharging debt and all personal liability for a deficiency judgment, credit line, second mortgage or other lien. The bank or finance company is barred from proceeding against you your assets or your future earnings.
- Full discharge only occurs under Chapter 7, so it is imperative to take early steps to analyze your situation and properly prepare to assure a full Chapter 7 discharge. Under the newly restricted qualifications for Chapter 7 and stringent guidelines for means testing, the early involvement of our experienced attorneys is the key to qualification and success under Chapter 7.
- Deed-in-lieu of foreclosure: This is the process where, through negotiation, your lender agrees to accept the title to the property in full satisfaction of your debt. This is an excellent result rarely ever seen. It is always made more difficult by the involvement of junior liens or credit lines. A deed-in-lieu requires complete cooperation, assistance and permission from all lenders. This option is not always available when dealing with mortgage lenders and servicers, but our attorneys know how to maximize your chances for deed-in-lieu success whenever this option will fully resolve your financial difficulties.
- Short sale: This is the process whereby you sell the house and the bank allows the sales proceeds to satisfy the total debt. While this can be an excellent result, the reality is that it rarely occurs. Short sales are uncommon in today’s difficult banking environment where large banks and servicers often utilize many different people who speak with many different voices. Banks and servicers are unlikely to coordinate all the parties and steps necessary for a successful short sale. Under certain circumstances, short sales can be a great solution when properly pursued by our experienced short sale attorneys.
Understand the myths about Foreclosure by reading our 10 Common Myths about Foreclosure article