New Member
Yestac
Posts: 4
Registered: ‎12-13-2012
How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit

We have a 2nd mortgage that was dischagred in bankruptcy.  Now the lender has offered a settlement that is considerably less than what is owed.  What I'm wondering is how the settlement will affect our credit.  The offer letter says that they will report it as "settled for less than owed." Since it was discharged, though, can it even be reported?  Any advice would be helpful!

Frequent Contributor
grassfeeder
Posts: 375
Registered: ‎03-01-2012
Re: How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit

Yestac wrote:

We have a 2nd mortgage that was dischagred in bankruptcy.  Now the lender has offered a settlement that is considerably less than what is owed.  What I'm wondering is how the settlement will affect our credit.  The offer letter says that they will report it as "settled for less than owed." Since it was discharged, though, can it even be reported?  Any advice would be helpful!


I was in this very same position a few months ago.  I was advised by my attorney, that if I wanted to keep the home - to not reaffirm the mortgage - and settle the second one.  Note, I was current on my first and delinquent on the second - so technically they 'could' foreclose on me based on that - settling the second drops the likelyhood considerably.  I only owed 17.5 on my second and settled for $1,250.00 - note, you're in the drivers seat, counter their offer with one even lower.  You should be able to get out of it really cheap as any money they pull from you is all gravy as you're free and clear based on the BK.  

 

As far as the language.  It will stay IIB, regardless of what they say it will report as - once it's IIB, it stays IIB.  I had that same stipulation with mine and my language has not changed at all.

Filed BK7: 7/12 (discharge 10/12) 5/12- EQ FICO - 508 / TU FICO - 490
EQ FICO: 672 (10/14)
TU FICO: 648 (10/14)
EX FICO: 667 (10/14)
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New Member
Yestac
Posts: 4
Registered: ‎12-13-2012
Re: How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit
[ Edited ]

grassfeeder wrote:

Yestac wrote:

We have a 2nd mortgage that was dischagred in bankruptcy.  Now the lender has offered a settlement that is considerably less than what is owed.  What I'm wondering is how the settlement will affect our credit.  The offer letter says that they will report it as "settled for less than owed." Since it was discharged, though, can it even be reported?  Any advice would be helpful!


I was in this very same position a few months ago.  I was advised by my attorney, that if I wanted to keep the home - to not reaffirm the mortgage - and settle the second one.  Note, I was current on my first and delinquent on the second - so technically they 'could' foreclose on me based on that - settling the second drops the likelyhood considerably.  I only owed 17.5 on my second and settled for $1,250.00 - note, you're in the drivers seat, counter their offer with one even lower.  You should be able to get out of it really cheap as any money they pull from you is all gravy as you're free and clear based on the BK.  

 

As far as the language.  It will stay IIB, regardless of what they say it will report as - once it's IIB, it stays IIB.  I had that same stipulation with mine and my language has not changed at all.



Thanks for the info!  I just can't seem to get a straight answer from anyone, so this was  big help!  With the 2nd being discharged and then settled, what were the tax implications?  I've been told that since it was dishcarged, we don't have to count the "difference" as income.  Is that what you've been told?

Frequent Contributor
grassfeeder
Posts: 375
Registered: ‎03-01-2012
Re: How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit

Yestac wrote:

grassfeeder wrote:

Yestac wrote:

We have a 2nd mortgage that was dischagred in bankruptcy.  Now the lender has offered a settlement that is considerably less than what is owed.  What I'm wondering is how the settlement will affect our credit.  The offer letter says that they will report it as "settled for less than owed." Since it was discharged, though, can it even be reported?  Any advice would be helpful!


I was in this very same position a few months ago.  I was advised by my attorney, that if I wanted to keep the home - to not reaffirm the mortgage - and settle the second one.  Note, I was current on my first and delinquent on the second - so technically they 'could' foreclose on me based on that - settling the second drops the likelyhood considerably.  I only owed 17.5 on my second and settled for $1,250.00 - note, you're in the drivers seat, counter their offer with one even lower.  You should be able to get out of it really cheap as any money they pull from you is all gravy as you're free and clear based on the BK.  

 

As far as the language.  It will stay IIB, regardless of what they say it will report as - once it's IIB, it stays IIB.  I had that same stipulation with mine and my language has not changed at all.



Thanks for the info!  I just can't seem to get a straight answer from anyone, so this was  big help!  With the 2nd being discharged and then settled, what were the tax implications?  I've been told that since it was dishcarged, we don't have to count the "difference" as income.  Is that what you've been told?


I've heard the same things......we'll see what happens in the next month when I file my return.

Filed BK7: 7/12 (discharge 10/12) 5/12- EQ FICO - 508 / TU FICO - 490
EQ FICO: 672 (10/14)
TU FICO: 648 (10/14)
EX FICO: 667 (10/14)
NFCU cashRewards $18,000 - NFCU Flagship Visa $18,000 - First Tech C.U. Cash Rewards $5,000 - Barclays Apple Card $2,000 - JCrew $4650
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Senior Contributor
StartingOver10
Posts: 4,581
Registered: ‎03-06-2010
Re: How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit

Look at form 982 at IRS dot gov -

New Member
Yestac
Posts: 4
Registered: ‎12-13-2012
Re: How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit

StartingOver10 wrote:

Look at form 982 at IRS dot gov -


I've seen that, but I'm not sure how it relates to a debt that dischrged years ago. 

Valued Contributor
chasmith
Posts: 1,062
Registered: ‎05-26-2010
Re: How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit

The debt was discharged in Bankruptcy.  Now if you settle the second to extinguish the remaining security interest, since the debt was already discharged you had no financial obligation, so  there is no cancellation of debt to give rise to a taxable event.

 

If the lender insists on issuing a 1099, fill out a form 982 showing that in fact you made a voluntary partial payment on a discharged debt.

BK7 Filed 8/11/2009 Discharged 11/23/2009. Purchased new home 4/11/2012
Starting Score:11/16/2009 EQ 566 11/16/2009 TU 538
Interim Score: 12/27/2012 EQ 683 09/17/2012 EX (lender) 670 1/01/2013 TU 701
Current Score: 11/06/2013 EQ 708 11/06/2013 EX 702 11/16/2013 702 11/06/2013 TU 729
Goal Score: EQ 740 EX 740 TU 740
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New Member
Yestac
Posts: 4
Registered: ‎12-13-2012
Re: How Settling a 2nd Mortgage After Bankruptcy Affects Your Credit

Thanks so much for the information.  I had some basic grasp, but this outlined it perfectly for me.  Thank you so much for your expertise!