You need to report all of your cash income on your tax returns in order to avoid being denied a loan modification due to lack of income. I have recently had two clients who earned cash and didn’t report this income on their tax returns. One client was denied a loan modification because of this. The other client is still trying to get a loan modification, but is having trouble because he didn’t report his cash income. I want to be perfectly clear that failing to report any income on your tax returns is illegal, in addition to other problems it can cause like this one.
I’ll call the first client Ed. Ed and his wife each have their own businesses. In order to avoid paying income tax on most of their income, they only reported part of Ed’s income and none of his wife’s. Ed filed a chapter 13 bankruptcy and entered into our bankruptcy court’s loan modification program. Ed’s mortgage servicer, Wells Fargo, denied their loan modification application because, since most of their income was not listed on their tax returns, Ed and his wife appeared to have very little income, and the income that Wells Fargo could see was not enough to make the mortgage payments that would be required in a loan modification.
I’ll call the second client Harry. Harry had regular employment income that was properly listed in his tax returns. However, that income was not enough to show that he could afford his mortgage payments. Harry also has cash income from a side job and from renters in his house. Harry didn’t list any of this cash income on his tax returns; again, this is illegal. Harry’s mortgage servicer is also Wells Fargo, and they are still deciding whether they will consider the cash income that is deposited into Harry’s bank account when deciding whether to offer Harry a loan modification.
It is not a good idea to fail to report income to save money on income tax. For one thing, doing this is illegal and can get you in serious trouble with the IRS. Additionally, if you need to show that you earn this income in order to do things like get loans, you may not be able to do so. Failing to report income is a common practice and people in bad financial situations sometimes do this, but it can cause bigger and worse problems than it solves.
If you are unable to pay your mortgage at its current amount, contact an attorney who provides loan modification services today. A loan modification is probably the only way to save your home if you can’t afford your mortgage, and using a competent attorney for this greatly improves your chances of getting one.