Military Retirement Pay at Risk
by Amber Franklin, Staff Writer for VeteransToday.com
I just received a question from a veteran asking “My house is going into foreclosure, can the lender take my military retirement pay to satisfy the debt?”
My first thought was “Wow, that’s an excellent question”. And it’s also a bit complex. But I will try to make it simple and clear.
First, your mortgage may be a “recourse” debt mortgage (check your papers). If it is “recourse” debt mortgage, the lender will send you a 1099 for the difference between what you owe on the property and what they eventually liquidate it for down the road. In other words, you have to report that 1099 as income and pay the tax on it. Yep, it’s a screw job! Stop Yelling! I know! I know!
Now, I am NOT a tax attorney or CPA so this info is coming to me and needs to be triple checked with your legal and tax advisor okay! So no nasty emails please!
So where does that leave your Military Retirement Pay? Well, if you don’t pay your taxes on that money you never earned but have to report as income, then the IRS and your state tax agency can come into play and levy your military retirement pay.
Again, I am not a tax expert but here’s my understanding of the deal. They are NOT supposed to take your pay to cover Federal or State Tax but many times they do. It’s supposed to be against the law. In other words, the agencies don’t always follow the law because people don’t want go against them when they come knocking….yep, fear! That lovely emotion we all feel when the man comes a knocking. Isn’t that special! We fear our own government! It’s a proud day for me, how’s bout you?
So now what?
Well, I don’t really have good advice that will make you feel better. It’s bad and nothing’s good about it. You go to foreclosure, lose your home (which you never really owned anyway did you – sucks huh?), and now the lender gets to write off the bad debt on their taxes while the government collects tax on income you never earned! Honestly people, does that make cents to you? Who comes up with this non-cents?
Again, I am very sorry to report to you that I don’t have anything good to tell you that will make you feel super good about this….except that you may have to take this one in the teeth and like me, become a freakin renter and hopefully lease another house with an option to buy at some ridiculously low price because some other poor sap lost it all and got a 1099 from some other lender! I mean, what else can one do, get the IRS abolished? What? I don’t know! Maybe we should all just leave the country in mass, you know vote with our feet? Geez! I feel hopeless!
So for you, read this and get pissed. That’s a start. Then, consult a real estate attorney and your tax pro for professional advice so that you can figure out what best to do in your specific situation.
After you figure it out, contact me and let me know what happened….however, it may take me a while to get back to you because I may be living on a beach Palapa somewhere deep in Mexico with no phone, no money, and tax bill I can’t pay with penalties and compounded daily interest that only serve as the final insult to injury as I wade out into the warm waters thinking “What the F&^%!”.
About the Author: Amber Franklin is an advocate for Veterans rights. She can be reached at [email protected]. She is NOT a tax or legal professional and thus the above should NOT be taken as gospel or as professional advice.