Jacksonville Bankruptcy Attorney Asks: Am I Responsible For The Cancellation Of Mortgage Debt?
One of the primary concerns for homeowners who are faced with foreclosure is what happens to their mortgage debt if the bank forgives it. This can happen in a traditional foreclosure or a short sale where the bank sells the property for less than the amount owed on the existing loan. In many cases the bank will issue the borrower a 1099 which tells the IRS that they have imputed income from the forgiveness of mortgage debt.
For those borrowers who are in serious financial debt, this can have a very detrimental effect on their situation. This is where the insolvency exception to imputed income from the cancellation of mortgage debt comes in handy. IRS Publication 908 offers debtors a way out of incurring imputed income for the forgiveness of mortgage debt if at the time the property was either foreclosed on or voluntarily returned to the lender they were financially insolvent (ie. debts exceed assets). Debtors who file for bankruptcy are presumed to be insolvent and the debtor’s responsibility for imputed income for the forgiveness of mortgage debt can be discharged in bankruptcy.
For more information regarding bankruptcy and mortgage debt forgiveness contact a Florida Bankruptcy Attorney in Jacksonville.
Greg Gilbert
Keith Maynard
