If your Orlando property was your primary residence, the foreclosure you mentioned was halted, you completed a deed in lieu of foreclosure or short sale, and the mortgagor forgave the deficiency balance and sent you a 1099-C for the forgiven amount, you would not need to file bankruptcy for the debt income. See the Bills.com document Mortgage Forgiveness Debt Relief Act for details if that was your circumstance.
However, because the Mortgage Forgiveness Debt Relief Act applies to primary residences and not investment property or second homes, then if you complete a deed in lieu of foreclosure or short sale, and receive a 1099-C, then the forgiven amount is considered income, and is subject to income taxes. If at the time of the forgiveness the debtor is insolvent, then the debt income is canceled. See the Bills.com resource Cancellation of Debt Income for details.
Given the dire circumstances of your Orlando condominium — namely the stunning drop in value and the non-existent rental market — a deed in lieu of foreclosure will be a superior choice for you if you can complete it before the foreclosure. See Deed In Lieu Of Foreclosure vs. Short Sale for a comparison of these two options.
Foreclosure vs. deed in lieu of foreclosure
Contact a human at the organization within your mortgagee that initiated or is responsible for the foreclosure. Send that person copies of the documents you have regarding the deed in lieu of foreclosure so that they are aware of your efforts. It does not surprise me that one organization within your mortgagor would initiate a foreclosure while another organization is simultaneously negotiating and considering a deed in lieu of foreclosure or short sale. Mortgage servicers are overwhelmed by changes in the mortgage field and are not operating efficiently or effectively. See the Bills.com resource Bank of America Foreclosure & Mortgage Modification for a recent answer I sent to a fellow reader that was on this point.
Foreclosure vs. bankruptcy
There are two basic types of bankruptcy available to consumers — Chapter 7 and Chapter 13.
A Chapter 7 bankruptcy, often called a “liquidation bankruptcy,” completely discharges many unsecured debts if you qualify to file. Most consumers who do not have significant assets or income choose to file for protection under Chapter 7 bankruptcy. Chapter 7 bankruptcy generally does not stop foreclosure action against consumers. The automatic stay ordered by the court when the case is filed postpones a mortgage company from proceeding with foreclosure. Since secured debts, such as mortgages, are not usually dischargeable in bankruptcy, the court or the trustee will usually grant relief from the stay to mortgage company to proceed with foreclosure if the homeowner’s mortgage remains delinquent.
If the debtor stays current in their mortgage payments (here, your property in New York), and files a statement of intention regarding the property to retain it, the debtor can retain the property. This is called a debt reaffirmation. This is an agreement in which the debtor agrees to repay a debt even if it was or could have been discharged (i.e., forgiven) in the the bankruptcy proceeding. A debt reaffirmation agreement is legal if it is voluntary, made with or without the advice of an attorney, filed with the bankruptcy court, and approved in certain circumstances by the bankruptcy court.
A Chapter 7 bankruptcy would discharge any deficiency balance resulting from a short sale or deed in lieu of foreclosure. Alternatively if there is no short sale or deed in lie of foreclosure, a Chapter 7 would wipe-out any liability for the mortgage or foreclosure. As mentioned, when filing a Chapter 7, the debtor must file a statement of intention regarding the property. There are two options: Retain or Surrender. If the debtor selects surrender he or she must quit the property. Liability for the deficiency balance following the foreclosure and REO or auction would be discharged.
Another option is Chapter 13 bankruptcy. This is also called a “wage-earners bankruptcy,” and is designed for those debtors who own significant assets and have a regular income, but who cannot afford their monthly debt obligations. In a Chapter 13, the debtor makes payments to the bankruptcy court for a certain period, usually three to five years, until all of the petitioner’s debts are paid. If the consumer cannot afford to repay all of his debts within the time period specified by his Chapter 13 plan, any debts remaining after all payments are made are usually discharged, meaning the debt is “forgiven.”
Both Chapters 7 and 13 create an automatic stay when filed, meaning that the debtorÂ’s creditors must cease all collection activity until the bankruptcy case is either finalized or dismissed, unless the stay is lifted by the court.
Recommendation
Consult with a bankruptcy attorney in your state of residence regarding your questions. Although you provided some details about your situation, there may be facts that you did not disclose that may be significant to your main question, namely, "When should I file for bankruptcy?"
Regarding your vehicles, each state has exemptions for debtors to retain vehicles up to a certain value. If the vehicles are as old as you suggest, then you will have no issue retaining them.
I do not see any significant difference between filing Chapter 7 or 13 before and after foreclosure given your stated desire to quit the Florida vacation/investment property. If you wanted to retain the property, the obvious answer would be to file before the foreclosure is recorded.
I do not see the foreclosure affecting your New York residence given the New York homestead exemption and if you remain current in your mortgage payments. Regarding the HOA dues, those should be discharged in the bankruptcy. Regarding taxes, some taxes may be discharged and others may not — consult with your attorney about this issue.
I hope this information helps you Find. Learn & Save.
Best,
Bill
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