If you’re struggling to stay current on a mortgage, it’s a good idea to contact your New Jersey lender right away. Doing so may prevent you from defaulting on the loan. However, if a default is unavoidable, it is important to understand the negative consequences that you might face.
Your credit score will likely go down
A late or missed payment could cause your credit score to fall by up to 50 points or more. However, a foreclosure could reduce that score by as much as 100 points or more, and it could fall again if you opt to file for bankruptcy in an effort to stop a lawsuit or foreclosure from occurring.
You might get a tax bill from the IRS
If your lender decides to forgive any portion of the outstanding balance on your home loan, that money might be considered income for tax purposes. However, the IRS generally doesn’t assess taxes on debts eliminated through bankruptcy. Furthermore, you’re unlikely to owe taxes on a forgiven debt if you are insolvent.
It can be harder to get another home in the future
A bankruptcy can stay on your credit report for up to a decade, and many lenders won’t offer mortgages to individuals who have filed within two years of applying for a home loan. Furthermore, a mortgage default will remain on your credit report for up to seven years even if you don’t file for bankruptcy. An attorney who has experience in this area of the law can often suggest other forms of debt relief.
