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USDA mortgage forclosure, tax and bankruptcy questions

Hailey, ID |

My home was foreclosed Sept 11, 2012 due to divorce and hasn't sold to my knowledge within the 90 days. Do I need to file bankruptcy to avoid further repercussions? USDA took my tax refund from 2011, can they take it from 2012? If they can take it, can I file bankruptcy to avoid that? Would the bankruptcy have to be done by the end of 2012? Or can it be filed and done in 2013 BEFORE I file my taxes? Also, if I do file bankruptcy I would like to be able to keep my car. My ex took my kids 5 hours away from me and I need reliable transportation to see them in addition to work and survival needs as I live 75 miles from the nearest (affordable) grocery stores as well. I have a PERFECT payment record and a 10+ year history with my auto lender/credit union if that matters. Thank you.

Attorney Answers 3


This is a complicated question. As a general rule, yes, if you file bankruptcy, then your liability for the arrearage on the loan after the auction should be eliminated. BUT, I have seen many cases where the government claims that, because it guaranteed the mortgage, the arrearage after the auction is a "governmental debt," which normally is non-dischargable. That's why they continue to seize tax refunds, even after a bankruptcy. That shouldn't be the case, but I've seen it occur many times. Additionally, the lien remains on the property regardless, so you wouldn't be able to sell it or otherwise dispose of it (which doesn't sound like your plan anyway). Your bankruptcy petition could be filed in 2013, but as I said, there is no guarantee that the government won't claim the debt is non-dischargable.

As for your car, you don't mention whether or not there is a lien on it. If there is, you can arrange to keep the vehicle post-bankruptcy. If not, it will depend on how much the car is worth as to whether or not you can exempt it from collection by the bankruptcy estate. Consult with a local attorney.

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You sure have a lot of questions. I can give you general answers, but you really should talk to an attorney to figure out a specific plan of action. First, I understand ID to be an non-recourse state. That means a mortgage company cannot seek to recover a deficiency from the foreclosure of a home - so there should not be any repercussions. Next, if you owe the government money, they can retain any tax refund you have due. You could protect that refund if you filed bankruptcy before the tax money was to be refunded (assuming the debt is dischargeable in bankruptcy). Generally, debtors can protect their vehicle in a Chapter 7 bankruptcy - depending on the value of the car, the amount of secured debt (if any) and the state exemptions. See an attorney BEFORE you decide to file bankruptcy.

I hope this helps.
Steven A. Leahy

Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.

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While my colleague is partially correct, Idaho is not a non-recourse state. It can be if a court orders a foreclosure sale, but most foreclosures are performed non-judicially via a deed of trust. In that event, lenders have a mechanism to recover deficiency amounts.

Your question, or questions I should say, are general and several. I suggest that you contact me or another lawyer for advice. I would need to know several more pieces of information before I could give you answers that you should rely upon. While you have good questions, each answer will depend on your particular circumstances and the facts involved. It would be irresponsible for me to fire answers back when so many of them depend on your individual situation.

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