HOME EQUITY SECOND MORTGAGES – TAX REFORM CHANGES AND BANKRUPTCY

The new tax reform law passed by Congress in 2017 continues to offer new surprises in a variety of areas. For instance, mortgage interest is still deductible – Right? The answer is a qualified “probably for the first mortgage, but not a second”. As discussed in the below linked article, the new tax law suspends the deduction for home equity interest from 2018 to 2026 — unless the loan is used to “buy, build or substantially improve” the home that secures the loan.:

https://www.nytimes.com/2018/03/09/your-money/home-equity-loans-deductible.html

This has implications for individuals who find themselves considering filing for bankruptcy with a second mortgage on their home. In a Chapter 13 bankruptcy, wholly unsecured second mortgages can be stripped off and discharged upon completion of the Chapter 13 plan. Often, the consideration to filing a Chapter 13 or Chapter 7 depends upon whether a second mortgage can be stripped off in a 13.

With the loss of the tax deduction for home equity loans, that may sway some individuals to consider Chapter 13 instead of a Chapter 7. For instance, an individual with 2 mortgages and $50,000 in credit card debt would normally just file a Chapter 7 and discharge the credit card debt. That individual would have been able to continue to deduct both mortgage interest charges from their taxes in the past. Now, the second mortgage interest may no longer be tax deductible. If the loss of the tax deduction is enough to offset the cost of the 13, should the individual now make a financial decision to file a Chapter 13 instead of a Chapter 7?

An experienced bankruptcy attorney can help you make that type of decision based on your personal financial situation and goals. That attorney should be able to advise you on the bankruptcy and other implications of your financial decisions.

At Mickler & Mickler, we personally attend court hearings on an almost daily basis. We keep up with the latest developments in bankruptcy law and related areas. We can provide you the type of bankruptcy advice which will allow you to make the best financial decision for your situation. Please feel free to contact our office with any bankruptcy related questions at 904-725-0822 or bkmickler@planlaw.com

Bryan K. Mickler

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