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Recent court ruling could help fight deficiency judgments

For any Chattanooga resident who has had the unfortunate experience of losing a home to foreclosure, most of the time, they assume that once they leave, it is the end of that trauma. Unfortunately, that is not always the case, and the bank can often come after the homeowner for the deficiency; that is, what still remained on the mortgage after the house was sold. However, there may be some debt relief for those people and it stems from a recent bankruptcy case.

The case ruling indicates that if any of those homeowners received an IRS Form 1099-C, a cancelation of debt document, then they could use that to show that the bank no longer has the right to come after them for the debt, since it states the debt has been canceled. Typically, the form is used to calculate any income taxes or state taxes owed on the amount forgiven by the bank. What the judge ruled was that it would be unfair for the homeowner to have to pay that tax and still pay the lender. Whether or not the taxes were actually paid did not change that it would be unfair to be liable to pay both. What that means for most people, at least in Tennessee and other states covered by the federal court's ruling, is that after receiving such a form, they can use it as a defense against having to pay the banks any further.

For many facing financial challenges, having a bank pursue them for hundreds of thousands of dollars after they already lost their home just feels like adding insult to injury. Further, it is likely impossible for those people to pay that much money as they are still likely just beginning to recover from their difficulties. If someone is served with such a deficiency notice, they should immediately seek out assistance to decide the best court of action. Though filing for bankruptcy is certainly one way to get relief from a potential debt, there may be other ways as well. However, it is best to consult a professional rather than trying to find those ways without help.

Getting help to find debt relief can often be a difficult process. Still, a fresh start is out there and with the proper assistance, is certainly obtainable.

Source: The Washington Post, "Tennessee bankruptcy court ruling could help former homeowners," Benny L. Kass, June 21, 2013

Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

Phone: 423-954-7180
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