Maybe you've lost your job, are suffering from a serious illness, or going through a major life change such as a divorce or death of a spouse or partner.
No matter the reason, your finances have taken a hit that has led to an unpredictable financial future and the possibility of your home being foreclosed on. You've got plenty of questions about your financial future, one of them being: how does a foreclosure impact your credit score? A bankruptcy attorney can answer that question and guide you through the foreclosure process.
Impacts on Your Credit Score
Unfortunately, the answer to that question is yes. Foreclosure occurs when you stop making payments on your home. Banks and mortgage lenders typically begin the foreclosure process when payments are three months in arrears. By the time the foreclosure legalities are complete, you might find yourself six or more months behind in your payments.
According to FICO, a foreclosure will drop a credit score of 680 by an average of 85 to 105 points. A credit score of 780 will tumble 140 to 160 points.
It can take years to rebuild your credit score following a foreclosure and it may never fully recover. A foreclosure stays on your credit report for an average of seven years plus 180 days from the date you made your last payment on time.
Before you opt for foreclosure to end your financial troubles, take into consideration the following:
- Your complete financial situation
- The future of the real estate market where you live
- The current real estate market
- The consequences of receiving a 1099 tax liability for the outstanding debt!
- If a bankruptcy attorney can help you
How does foreclosure impact your financial future?
Simply put, a foreclosure will impact every aspect of your finances. You will find it difficult to obtain credit in any form, from a credit card to an auto loan. When lenders see a foreclosure on your credit report, they see you as risky to lend money to.
How can you change this perception and begin to rebuild your credit? Try to pay your bills on time, begin decreasing your debt, and take on as little new debt as possible.
How a Richmond Bankruptcy Attorney Can Help
Your credit score isn't the only thing to take into consideration during a foreclosure. The IRS considers it a taxable event when debt is forgiven. This means that if your balance owing to the mortgage company is $100,000 after the foreclosure is complete, and the mortgage company “writes off” that debt, then you might have to pay taxes on that entire 100K. DO NOT put yourself in such an awful circumstance; talk to a bankruptcy attorney instead. We really can help you! Even if you think you cannot afford a lawyer.
If your home sells for less than what you owe on it during the foreclosure sale, you are responsible for paying taxes on the difference. The only way you would not have to pay taxes is if you declare bankruptcy instead of allowing your home to be foreclosed on.
Being in debt can seem like you’re in a never-ending financial crisis. If you are being financially burdened during this or any other time of year, it’s important to remember that you have options. A Richmond bankruptcy attorney from Throop Law can guide you through the nuances of bankruptcy law so you get your life back and have a new beginning at the start of the new year.
Contact our firm at (804) 215-1515 for a consultation to discuss your case.