Many clients have questions about life after bankruptcy. If you have general questions regarding bankruptcy, be sure to check out our New Mexico Bankruptcy Frequently Asked Questions post. There are many things on an individual’s mind post-bankruptcy; Here are some answers to some of the common questions.
How Do I Rebuild My Credit After Bankruptcy? Will I Be Able to Buy A House After Bankruptcy?
A bankruptcy will remain on your credit report for up to ten years after a discharge. Many clients are concerned about their ability to secure future credit. While it may take a couple years to establish good enough credit to purchase a home, most people that resort to filing bankruptcy had terrible credit at the time the petition was filed. Generally what happens is that post-bankruptcy clients will get access to small lines of credit shortly after the bankruptcy (creditors believe that post-bankruptcy individuals are a good risk to extend credit to because that individual just got rid of a ton of debt and can’t file a bankruptcy again for at least eight years). Best practices would suggest using such credit lines to only pay for bills that can be paid in full immediately. With regard to larger purchases (like a home or car), there is much more emphasis placed on the income of the credit seeking party; if a person starts making significantly more money this will be taken into consideration when a post-bankruptcy client is looking to purchase a home. FHA insured loans become available for debtors anywhere between 1 to 4 years after a bankruptcy (the length partly depends on which type of bankruptcy was filed).
What If I Forgot To List A Creditor On My Bankruptcy Petition?
If this is discovered soon enough your bankruptcy petition can be amended to add a creditor. The key to getting debts discharged is giving your creditors notice. If your bankruptcy is already over it may not matter that a particular creditor was not listed. One question that needs to be answered is whether the creditor had actual knowledge of the bankruptcy; if so then that is sufficient. In circumstances where a creditor was omitted and actual notice does not exist, it still may not matter that a creditor was not listed. If the debtor had no property that was subject to liquidation (referred to as a “no-asset bankruptcy” due to the fact that all of the debtor’s property is completely exempt) then absent some type of fraudulent activity the debt will likely be discharged. See our article for more information about property transfers before bankruptcy. If there was some distribution of assets to unsecured creditors, then having an omitted creditor is more complicated to deal with and likely requires reopening the bankruptcy; be sure to speak to a bankruptcy lawyer if you find yourself in such a situation.
I Got My Discharge, What Debts Are “Discharged”?
The Discharge Order will indicate which types of debt are not discharged, but the Order doesn’t really address which particular debts get discharged (it is worded very generally “Debtor is entitled to a discharge”). Common debts that are discharged are credit cards, personal loans, medical bills, debts arising out of a car accident, obligations under a contract or lease, and judgments. The types of debts discharged is something your New Mexico bankruptcy attorney should have discussed with you.
Debts that survive the bankruptcy are things like a domestic support obligations (things like child support or alimony), fines or penalties to a governmental entity, homeowner’s association fees, certain tax debts (see our article regarding discharge of taxes through bankruptcy), and most importantly student loans (see our article on student loan debt and bankruptcy to see why student loans are typically not dischargeable).
I received a 1099 for a discharged debt, is this taxable income?
The short answer is no, as our New Mexico Bankruptcy FAQs page indicates; this is common, and can be handled by use of IRS Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness). One important aspect is that certain tax credits and loss carryovers will be reduced when applicable.
What do I do with a home I surrendered?
Unfortunately surrendering a home after bankruptcy is not as easy as returning the house keys to the mortgage company. Personal liability for the home loan is generally taken care of due to the bankruptcy; however, the debtor still remains on the title of the property, which makes the debtor liable for certain fees that can arise as well as liabilities associated with the property itself (premises liability for example). Restoring or “Quieting” title thus requires the bank that holds the mortgage to accept a deed-in-lieu of foreclosure, a short sale agreement, or initiate foreclosure proceedings.
With a deed-in-lieu, the bank accepts a deed from the debtor. A deed-in-lieu is generally a good option for the mortgage holder (because it avoids the cost and time constraints of foreclosure). The problem is that each bank/mortgage company has their own criteria for accepting a deed-in-lieu. A short sale allows the home to be listed on the real estate market, with the bank basically agreeing to write off the deficiency. Since the debtor is not liable for a deficiency tied to the particular loan after the bankruptcy, they might be less inclined to pursue this route. The other option of course is a foreclosure which ultimately allows the bank to clear title by selling the property through a foreclosure sale. In many cases the bank will bid the amount it is owed at the foreclosure sale and will try to resell the property.