Recently, I spoke with a friend who is currently on both full Veterans Administration (VA) and Social Security disability. His disability income and what his newly wed wife makes at home are their only source of income.
Three years ago before marriage, living with his Mother and a Step Father as a veteran on disability, he was forced to give up the keys to his home in which he and his family had lived in for ten years. Having the credit and income to support a loan, the man’s Mother and Step Father agreed to help him with payments on the mortgage loan, an ARM loan that was due to increase in interest rates after 10 years of payments.
His Mother and Step Father moved away the year before the new interest rates on the Arm were due. This was in 2009 after the recession was in full swing and the foreclosure crisis was being felt all across the nation. His house was now underwater, and he could no longer afford the new interest rates of the Arm after losing the financial help he had been receiving from his family the prior ten years. So, he gave the keys to his mortgage lender and walked away. The mortgage loan company inspected the house and took his keys when he walked.
Today, some three years after giving up his keys, now married, and wanting a chance to own a home again, someone wanting to collect on the deficiency amount of the old loan has contacted him and his new wife claiming he owes over $100,000 on the old loan but would settle for $6,000.
The couple suspects this may be a scam, but they are also worried the mortgage lender will send him a deficiency 1099-C statement for the amount the mortgage company forgave. In the latter case, this might mean the disabled vet may have to pay taxes on the deficiency because it was a forgiven debt, a source of taxable income not related to his disability income.
The former settlement offer is most likely from a Junk Debt Buyer (JDB) who has bought the deficiency from the man’s former mortgage lender for collections. The JDB may be threatening a lawsuit to collect. With a successful judgment, they potentially could garner the vets wages, or could they?
The vet, feeling forced to file bankruptcy, wants to know if he should file bankruptcy in order to protect what assets he has by eliminating the deficiency on the old loan and stopping any garnishment activity. For the answer to that question, he should seek the advice of a bankruptcy lawyer.
As to answering the question about garnishing a veterans disability income, federal laws are precise about what can and cannot be garnished, but unfortunately, there is a current loophole in the law concerning veterans bank accounts where federal funds have been deposited. These accounts are often frozen by a JDB and funds can be taken out to pay off a successful judgment. The Obama Administration as early as April 2010 proposed a new set of rules for the veterans on disability that was put out by the Treasury Department to stop the behavior of the banks honoring the state judgments.
- Bankruptcy and a Two Year Wait for a Mortgage After (betterbankruptcy.com)
- Bankruptcy and the Mortgage Forgiveness Debt Relief Act of 2007 (betterbankruptcy.com)
- Eleven Common Bankruptcy Definitions You May Want to Know (betterbankruptcy.com)
- Can You Get Financing After Filing a Chapter 7 Bankruptcy for the Second Time? (betterbankruptcy.com)
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