I had to file Bankruptcy (chapter 7) and never re-affirmed the house. I did stay in the house for a year after the Bankruptcy and paid what I could on the mortgage but eventually lost it in a foreclosure. The Bank then filed a cancellation of debt and that ended up on my taxes as income causing me to have a extra 60,000 dollar income that year. Now the I.R.S. is after me. My question is the house was in the bankruptcy can the bank file that cancellation of debt? Was that legal?
1 Answer from Attorneys
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude cancellation of debt income regarding their principal residence as long as it is "qualified principal residence indebtedness" (as defined in the Act). Mortgage debt forgiven in connection with a foreclosure qualifies for this relief. However, the Act only applies to debt that is cancelled during the years 2007 through 2012.
Hope that helps!
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