Legal Question in Bankruptcy in Nevada

Depends on your goal. Are you aware that in a Chapter 13 you can completely wipe out the second if there is no equity for it. You would file right before the foreclosure sale and pay back the 13 plus months to a trustee over 5 years. This is assuming you want to keep the house.

Otherwise, file your Chapter 7 the day before the foreclosure and it will buy you another 3 months. Figure you will have to be out of the house 5 months after the foreclosure sale, at the earliest, could be longer. I have seen as long as 2 years and the clients are still in the house not making a payment.

There wouldn't be a problem if you only had a first mortgage. However, once the first forecloses, you will still owe the money on the second.

The party holding the second has the right to sue you to collect on the second, which could result in your wages being garnished, your bank account being seized, or other assets being taken to pay this large debt.

If you don't have assets, the party holding the second could "forgive the debt." Although that sounds like an act of charity that would be in your best interests, the result will be that you will have to pay taxes on the entire amount of the second as if it were income.

So if it is a $60,000 debt & you are in the 30% tax bracket, you will owe the IRS $18,000, plu interest and penalties. (More if the debt is more, more if your tax bracket is higher.) You will not be able to eliminate this tax debt in bankruptcy once the debt is forgiven.

This is why if you make the decision to walk away from your house, you may want to consider filing Bankruptcy first to prevent the forgiveness of debt.

Don't believe that this could happen? Go to the irs website at IRS.gov and search for "forgiveness of debt" to get the details. Consult your tax advisor as well for an opinion. Most people in Nevada DO NOT fit into any of the exceptions that allows them to avoid this horrible tax consequence.

Bankruptcy can be an important strategy in preventing the tax consequences relating to a foreclosure.