Can Tax Break Help Bankruptcy Help Stop Foreclosure?

January 26, 2012 11:31 am Published by

Just two weeks ago, I gave Bankruptcy in Indiana readers a Mark Zuckerberg tip-off – a piece of Indiana bankruptcy information that had to do with a tax break.

I’ve been a debt consolidation lawyer practicing Indiana bankruptcy law for 25 years, but only in the last five of those years has there been this tax break when it comes to foreclosure.  To us in the Zuckerberg bankruptcy law offices, the reason we’re interested is that we Indiana bankruptcy attorneys have worked very hard, within the new bankruptcy laws of indiana, to help stop foreclosure on clients’ homes.

Knowing how important it is to many single moms and parent couples to keep their children from having to change schools, we do our best to negotiate mortgage modifications.  But, as one of the Columbus bankruptcy lawyers who is my colleague puts it, there’s nothing simple about that process!

The other day I read in USA Today how every government program designed to help Americans keep their homes “has fallen far short of goals.”  HAMP, which was supposed to help 3-4 million people, has resulted in only 800,000 modifications.  One of my Bloomington  bankruptcy lawyer colleagues quoted the Federal Reserve Government officials, who plan on fining mortgage servicers because they’re doing such a poor job. We KNOW they are – our own efforts to help stop foreclosure are being met with lost paperwork and incompetent customer service. Very occasionally, the very fact that an attorney is involved helps hurry things along a bit.

The silver lining, though, is this tax break I’ve referred to.  Yes, Chapter 13 bankruptcy in Indiana can itself help stop foreclosure.  But, even in a worst-case scenario where a foreclosure cannot be prevented, the tax forgiveness which applies to mortgage debt during calendar years 2007-2012 only means that debt discharged through foreclosure (like debt discharged through bankruptcy Chapter 7 in Indiana or under Chapter 13 bankruptcy law) will not be considered taxable income.

In short, because of this temporary “break”, the combination of Indiana personal bankruptcy AND foreclosure in 2012 can increase the level of assets you’re allowed to keep.  The overall goal of bankruptcy in Indiana, remember, is for debtors to have a chance at a fresh financial start!


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