If you have debt, you might be having trouble with everyday purchases. If you are having trouble with your mortgage, you need to do something to protect yourself and your family. One of the few government debt reduction programs is available to you, if you qualify. The Mortgage Forgiveness Debt Relief Act of 2007 can allow you to restructure an unaffordable mortgage loan in order to prevent foreclosure.
This piece of legislature came about during the recent subprime mortgage crisis. Its main purpose is to allow forgiven debts to be nontaxable income. Typically, when a borrower cannot make payments on a secured loan and the lender forgives some or all of the debt, the forgiven amount is deemed taxable income. The few exceptions are when you or insolvent or have declared bankruptcy, if you own a farm and most of your income comes directly from farming, or if you have a non-recourse loan (a case in which the only way to prevent default is repossession of the property being used as collateral). The recent Mortgage Forgiveness Debt Relief Act now allows the restructuring of a mortgage to be considered nontaxable.
The Act is seen as a way to prevent foreclosure, and lenders like this. Why? Well, during the housing crisis, many people with adjustable rate mortgages were defaulting as interest rates increased. Once the homes were foreclosed on, lenders were not receiving cash flow, and many of them were going out of business. The Mortgage Forgiveness Debt Relief Act is similar to a small-scale debt negotiation, where the borrower asks for a lower amount of principal, as well as a lower interest rate. While the lender is getting less than he/she originally expected, a restructuring of the loan prevents foreclosure. The lender will be better off taking something than nothing.
There are a few guidelines for the Mortgage Forgiveness Debt Relief Act. The legislation allows forgiveness up to $2 million for a couple filing jointly, while up to $1 million for an individual filing. Only homes that are principal residences qualify for the legislation, and the loan in question must use the qualifying property as collateral. Also, when you report the forgiven amount to the IRS, instead of a 1099-C form, you will fill out a 982 form. Finally, you may be able to include cancelled student loans and credit card debt as nontaxable income, but only if these cancellations occurred in a Chapter 11 bankruptcy.
The Mortgage Forgiveness Debt Relief Act was originally supposed to expire in 2009, but an amendment to the original legislation has extended it through 2012. If you qualify, you may be able to get a smaller loan amount without having to pay taxes on the forgiven portion. Better yet, you may keep your property and prevent a foreclosure.
He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.
Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.
In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
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