Florence Bankruptcy Law Blog

Many people choose to file for Chapter 13 bankruptcy because it gives them the option to pay off part of their debts without relinquishing important personal property.

However, unlike a Chapter 7 bankruptcy, which can often be completed within several months, the payment plan in a Chapter 13 bankruptcy generally lasts between three and five years.

Indebted homeowners take notice - your most valuable tax exemption is about to expire.

In 2007, Congress passed a debt relief law that allowed mortgage holders to avoid paying taxes on forgiven debt. Under normal circumstances, if you sell your home in a short sale, refinance your mortgage or go through foreclosure, the amount of debt you no longer have to pay counts as "income" for tax purposes.

However, under the Mortgage Forgiveness Debt Relief Act of 2007, discharged mortgage debt is exempt from taxation. It is important to note that the rule applies only to a primary residence, not to vacation, rental or investment properties.

The past several years of economic turmoil have been hard on families in Kentucky and throughout the nation. Job losses and other financial problems have led many to file for personal bankruptcy in an effort to seek relief from overwhelming debt.

New data shows this trend may be improving, at least for now.

According to the National Bankruptcy Research Center, personal bankruptcy filings dropped by 12 percent in 2011, as compared with the previous year. All told, 1.35 million Americans filed for Chapter 7 or Chapter 13 bankruptcy last year. In 2010, there were more than 1.5 million filings.

When the housing bubble burst, millions of American homeowners were left owing more on their homes than their properties were actually worth. Collectively, American homeowners are now more than $700 billion under water.

Chapter 13 bankruptcy filers may soon have a way to get their mortgages back in line with their property values.

The Federal Housing Finance Agency is considering a proposal that would allow homeowners pursuing Chapter 13 bankruptcy to pay down the principal on their mortgages. Under the plan, homeowners would pay zero percent interest for five years following bankruptcy.