Question: I foreclosed on a home in Maricopa county Arizona as of September 15th. I have a Heloc loan which i got with the purchase of the house. They are now saying i still owe them and that the Heloc is like a credit card and i will keep owing. What should i do?
Answer: -Well, you can try to settle the debt with them and pay them a fraction (5% -10%) of the original loan amount, you can do nothing and hope they issue you a 1099 in which you will have to pay taxes on that money you received, or they will file a deficiency judgment against you in which they can garnish wages and so forth until that amount is paid. If it goes that far, most people will file bankruptcy and either get it wiped out completely with a Chapter 7 or agree to pay the lender a certain amount (5% – 10%) over a period of time with a Chapter 13.
Is it possible to settle for 5 – 10% and legally keep the lender from sending a 1099 to the IRS for the deficiency balance? And if they have already sent a 1099 to the IRS, is it possible to have this tax liability wiped out completely if bankruptcy is filed afterwards?
Thanks!
More than likely they will file a 1099. Unfortunately there is not a lot you can do about that. However, for most people, a 1099 is good news because it can be negated with a certain form from the IRS. You’ll need to talk to your accountant, but your tax liability would be wiped out without having to file bankruptcy. Even by filing bankruptcy you may not be released of certain IRS tax obligations.
what form from the IRs NEGATES a 1099?
Not everyone qualifies, you have to talk to your accountant, but IRS Form 982 will negate a 1099.
If the Heloc is purchase money, under Arizona law they cannot come after you for a deficiency. Write them a letter “reminding” them of this. Do not pay.