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Dear Bankruptcy Adviser,
I filed Chapter 7
in 2007, and during that time I agreed to let the house go. It is now going up
for foreclosure and auction. Will I be held responsible for any taxes on this
property with the sale of the house?
-- Lynda
Dear Lynda,
Now more than ever, you must look
out for yourself and you must know what potential liability you face. Most debts
are eliminated (discharged) in a Chapter 7 bankruptcy. The largest exceptions
are student loans, domestic support obligations and loans obtained through fraud.
In
general, all debt connected to the house you recently lost will be eliminated
in your Chapter 7 bankruptcy. The remaining balance owed on the first mortgage
loan and any junior mortgages, such as a second or third mortgage loan, will be
wiped out. Lines of credit, when secured by the house, are still considered to
be mortgage loans and will be eliminated in your bankruptcy. Other
debts such as delinquent utility payments, property tax and property insurance
also will be eliminated in your bankruptcy. Make sure to list all these entities,
as you do not want some collection agency trying to collect debt that could have
been included in your Chapter 7 bankruptcy. Don't leave anyone out. In most cases,
failing to list a creditor does not mean you must pay the debt. You just don't
want to deal with any issues after your case has been filed. Homeowner
association (HOA) fees are one of the only types of debt that could potentially
survive the bankruptcy. However, very few associations are pursuing former homeowners.
If you have moved out of the property and the property has been sold in foreclosure,
then the HOA dues will be eliminated in the bankruptcy. But if the property has
not been sold or transferred back to the bank (via a short sale or deed in lieu
of foreclosure or foreclosure), then you are responsible for the post-filing of
HOA dues. If you continue to live in the property after your case has been filed,
then you ought to continue or restart paying the HOA fees until the house is sold
or transferred back to the lender. This is reasonable, since you are getting the
benefits of living in the property. Be very careful in this scenario. Finally,
make sure to keep your property insurance current until you have left the property.
If you have an impound account -- i.e., your monthly mortgage payment includes
property tax and insurance payments -- then the mortgage lender will continue
to pay the property insurance. However, if you were paying the property insurance
and remaining in the house throughout the bankruptcy, then continue to pay the
insurance. You do not want to have someone get injured at your place during the
transition out of the house. This monthly payment is worth the additional protection
and peace of mind. | 
