In 2007, U.S. lawmakers passed a law meant to provide individuals going through the bankruptcy process additional financial protection if their mortgage debts are canceled or forgiven. This law, known as the Mortgage Forgiveness Debt Relief Act, makes sure that a person won’t pay taxes on mortgage debt if their mortgage debt was canceled or forgiven. This law also covers people who have lost their home due to foreclosure.
If your bankruptcy process will include substantial mortgage debts that may be forgiven or canceled, the Mortgage Forgiveness Debt Relief Act may be applicable to you, especially if you will have tax liabilities for these loans. To learn more about your financial options and what you can do during bankruptcy, contact a Joliet bankruptcy lawyer at the Law Offices of Stuart B. Handelman, P.C., today by calling 815-722-2201.
How Does This Law Work?
The Mortgage Forgiveness Debt Relief Act applies to the bankruptcy process in the same way it applies to mortgage debts forgiven or canceled through other debt relief solutions. This means that a person who gets their mortgage debts forgiven or canceled during bankruptcy may not need to pay taxes on the remaining balance of their loan, which would normally still be taxable.
The qualifications for the Mortgage Forgiveness Debt Relief Act include the following:
The cancellation or forgiveness must occur between 2007 and 2012
Forgiven debt must have been spent on home improvements
Forgiven or canceled debt must be tied to a principle residence, not a vacation home
Mortgage modification or restructuring qualifies
Under this law, a person can avoid being forced to pay taxes on debt they no longer carry. However, the IRS will still require people to take note of these debts on a tax return.
The Mortgage Forgiveness Debt Relief Act is a limited-time offer from the federal government to protect homeowners from being unnecessarily taxed on debts they no longer hold. If you believe you may qualify for this law, it may be important to take action quickly. For more information about your options, contact our Joliet bankruptcy attorneys of the Law Offices of Stuart B. Handelman, P.C., today at 815-722-2201.