Boston Homeowners With Mortgage Debt Could Face Taxes

Boston residents who have lost their homes to foreclosure this year may likely be subject to taxes by the IRS, according to CNN Money. Those who had some of their mortgage debt forgiven after selling their house for less than the mortgage balance could also face the same tax fate, since the IRS considers forgiven debt you are personally responsible for as income.

The Mortgage Forgiveness Debt Relief Act in 2007 ended the liability on mortgage debt for most homeowners, meaning the IRS will not typically count the difference from short sales or foreclosure as income until 2012, when the act will expire. However, CNN reports there are four main exceptions to the act:

   1. If you have a home-equity line of credit, the IRS will only forgive the tax liability on your loan if the money was used to pay for home improvements, because it will add to the value of your home. You will also need to have receipts available for proof.
   2. You refinanced your home but used the money to splurge on something else, like on a vacation, a new car, or paying off your student loans or credit cards. Just like with the home-equity loan, funds used to improve your home will not be taxed, but the IRS will treat the forgiven debt you took out as cash and spent elsewhere as taxable income.
   3. If you owned a multi-million dollar house, only the initial $2 million in forgiven debt can be covered under the relief act, while the remainder is left subject to taxes.
   4. If you lost a vacation home or investment property that you did not list as your primary residence for at least two of the last five years, you will likely have to pay taxes.

To learn more about your legal options when it comes to potentially paying taxes for your mortgage debt, seek legal counsel from an experienced real estate attorney who can evaluate your case and determine other possible alternatives to resolving your mortgage debt.
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Wipe Out Your Debt and Keep Your Property

So many people that I meet with and who file bankruptcy simple have no idea what bankruptcy is all about before they have met with me. Once they learn about all of the benefits, and there are so few negatives, they always say they wish they would have done this a lot sooner.

Had they known all the benefits of bankruptcy, they could have filed six months or a year ago, instead of having wasted a lot of money on debt consolidation or having paid bills that it could have been easily wiped out along time ago by filing for bankruptcy sooner.

One of the most common misconceptions I hear is that people believe that if they file for bankruptcy they are going to have to give up their house, car, jewelry, and other valuable personal possessions. Nothing could be farther from the truth.

When you file a successful Chapter 7 you wipe out all of your unsecured and you keep all of your property.

So, when you successfully file a Chapter 7, you get a discharge from all of your debts, meaning all of your unsecured debts are legally forgiven, within about 4 months after you have filed your case. Once your case is filed, none of your creditors can pursue you anymore. All lawsuits have to stop. All wage executions have to stop. Any freezes on your bank account have to be released. None of your creditors can call you, write to you, or have any contact with you whatsoever. If they do they are violating the law and you could actually ask the bankruptcy court to give you money because they have violated your right.

I practice in New Jersey and New Jersey follows the Federal Bankruptcy Law with respect to what property you are allowed to keep and still wipe out your unsecured debt. The term that is used to describe the property that you can keep is "exemptions".

Exemptions basically define what properties you are allowed to keep and still wipe out your unsecured debts. You can own a house and still wipe out your unsecured debts, but there are some limitations on how much equity you can have in your house.

The federal bankruptcy exemption permits a minimum of $43,250 equity in a couple's home. This means that as long as you don't have more than $43,250 equity in your home, as a married couple, you can still keep all your property when you file for bankruptcy.
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