The recent downturn in the economy has caused many in the Sacramento area to rethink what they do with their money. Many have cut down spending and created strict budgets. Many others have turned to various forms of debt relief to survive.
One form of this debt relief is a tax relief on forgiven mortgage debt. This relief has been extended through 2013. Forgiven mortgage debts are generally taxable. But since 2007, the Mortgage Debt Forgiveness Debt Relief Act has allowed individuals to avoid taxes on loan balances of up to $2 million.
In San Diego County, almost 30 percent of all home sales are short sales. Once this debt relief act expires, it may lead to serious economic consequences throughout California and across the United States. Without this relief, there may be an increase in bankruptcies and foreclosures because the individual cannot afford a tax bill for any forgiven mortgage debt.
There are a variety of options for an individual in need of debt relief. A common option is filing for bankruptcy. There are two forms of personal bankruptcy, Chapter 7 and Chapter 13. With either bankruptcy, it is important for debtors to create a financial plan for after filing to ensure that they have a greater financial future.
In Chapter 7 bankruptcy, debtors can eliminate debt. In Chapter 13 bankruptcy, they create a repayment plan that allows them to restructure their debt and eliminate some if not all of their interest and late fees. One benefit from filing is that it stops all creditors' actions once the bankruptcy action is filed.
Source: North County Times, "Mortgage debt relief extended for homeowners," Lily Leung, Jan. 2, 2013