Senate seeks to extend Mortgage Forgiveness Debt Relief Act | St ...

During this recession, many Missouri homeowners are struggling to pay their mortgages. Bills pile up and eventually people are left with debt they cannot pay back. Many banks foreclose on homeowners in this situation. With a foreclosure, the bank takes back the house; the homeowners can no longer stay there but they no longer owe the bank money.

Normally, the money that the homeowners no longer owe is considered a form of debt relief by the IRS and is therefore taxable income. However, in 2007 as more homeowners struggled to pay their mortgages and fell into foreclosure, more people owed money to the IRS that they could not afford to pay. As a debt relief, Congress passed the Mortgage Forgiveness Debt Relief Act.

Under this Act, homeowners that received debt relief from a transaction involving their home including a deeds-in-lieu of foreclosure settlements, foreclosures, short sales or loan modifications do not owe federal income taxes on the relief they received. This keeps homeowners that are already financially stressed from worrying about additional debt.

However, unless Congress takes action this law will expire at the end of this year. If this act expires, then homeowners will owe taxes on any debt relief they receive on their mortgages. This could set the economy backwards and affect millions of people who are already struggling to pay off debt.

Thankfully, the Senate Finance Committee has approved a new bill that could extend the Act through 2013. The new bill will allow the tax relief measures to stay in place and adds new mortgage insurance deductions for people to use to their advantage. But this is just one step in a lengthy process to provide debt relief options to those struggling with their mortgages and it is unclear if the bill will ever become law this election year.

Source: Los Angeles Times, "Senate panel backs extension of mortgage debt relief law," Kenneth R. Harney, Aug. 12, 2012

Source: http://www.stlouisbankruptcylawattorney.com/2012/08/senate-seeks-to-extend-mortgage-forgiveness-debt-relief-act.shtml

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