Can I Walk Away from a Foreclosed Home?
While you can walk away from a foreclosed home, you may not be able to walk away from tax problems arising from cancellation of debt income. The only sure way to avoid debt or tax consequences arising from a foreclosure or short sale is to file bankruptcy.
I am Cherry Hill, New Jersey bankruptcy attorney Joel R. Spivack. I dedicate my entire practice to helping people seek debt relief through Chapter 7 and Chapter 13 filings. With more than 25 years of experience practicing exclusively in the area of bankruptcy law, I am in a strong position to help you find solutions to problems like mortgage debt and foreclosure.
What Is Cancellation of Debt Income?
When a lender cancels or forgives a debt, whether it is a $5,000 credit card bill or a $200,000 mortgage, the lender is required to report the forgiven debt to the Internal Revenue Service (IRS). The IRS views forgiven debt as income, so you will owe taxes on it. That tax can be significant in a home foreclosure. A $200,000 mortgage debt can quickly grow once foreclosure expenses, sheriff’s costs and other expenses are added to the tab. As a result, you could end up owing many thousands of dollars in taxes.
The Mortgage Forgiveness Debt Relief Act of 2007 exempted income from discharge of debt on principal residence. However, this law expired on Dec. 31, 2012.
When a lender forgives debt, you will receive a 1099-C form from the lender. If you fail to report this income to the IRS, you could get a surprise a few years later. The IRS may order you to pay income taxes on the forgiven debt, plus interest and penalties dating back to the year you walked away from your home.
You can protect yourself from canceled debt income by filing bankruptcy. Bankruptcy not only wipes out the debt, it also protects you from incurring a tax liability.
Schedule a Free Initial Consultation with a Cherry Hill NJ Foreclosure Attorney
For more information about canceled debt income, call me, Cherry Hill foreclosure lawyer Joel Spivack. You can reach me by phone at 856-488-1200, toll free at via e-mail. My regular business hours are 8 a.m. to 5 p.m., Monday through Friday, and free parking is available.
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