Homeowners seeking foreclosure help need to be aware of catches to the Mortgage Forgiveness Debt Relief Act of 2007 to ensure they do not end up owing taxes on an otherwise forgiven debt. The Washington Post reported on September 24, 2011, that if you borrow money and the lender cancels or forgives the debt, you are generally required to include the canceled amount as income for tax purposes. While you are not taxed on borrowed money because you are obligated to repay it, if the debt is wiped out, then the lender must report the amount of canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
The mortgage debt relief act is supposed to allow people to exclude income from the discharge of debt on their principal place of residence, although foreclosure and debt reduced because of a mortgage restructuring also qualifies for relief under the new law, according to the Post. However, only debt forgiven in calendar years 2007 through 2012 is eligible under the law, and in order to receive relief, the Post reported the “debt must have been used to buy, build or substantially improve a principal residence and be secured by that residence.”
The Post states that “the best time to get out from under the mortgage is before the debt relief law sunsets,” which means that if you are facing foreclosure, now is the best time to speak with a Washington DC bankruptcy lawyer about the Chapter 13 or Chapter 7 bankruptcy process. You not only want to avoid joining those who lost their homes only to be hit with a tax bill afterwards, but you want to find a way to stay in your home as well as experience real debt relief. Contact out firm today to set up a free initial consultation with experienced Washington DC bankruptcy attorney Kevin D. Judd, a distinguished member of multiple boards who can answer all of your questions about the bankruptcy means test, debt consolidation and restoring your financial freedom. Have you tried to take advantage of the Mortgage Forgiveness Debt Relief Act of 2007 only to be denied? Tell us about your experience.