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, like 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 fees are the only type of debt that can potentially survive the bankruptcy. However, very few associations are able to collect money after the bankruptcy filing. If you have moved out of the house and filed your case, then the homeowner association dues will be eliminated. 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 you move out. You may still be liable for the HOA fees that come due after your case has been filed. 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.