Q+A: Is My Canceled Debt Really Canceled?

… According to the IRS, not necessarily.

Could my Canceled Debt be Taxable?
Yes. Typically, loan proceeds are not income because there is an obligation to repay. According to the IRS, when a lender forgives a debt it is considered income.

What Count as Income Anyway?
The IRS is concerned with gross income (i.e. “all income from whatever source derived”). If it is not debt canceled by bankruptcy or other qualified indebtedness, certain qualified student loans, a gift, or a bequest, it is income.

What About Income from my Canceled Mortgage Debt?
Income from mortgage debt cancellation is usually taxable. However, the Mortgage Forgiveness Debt Relief Act of 2007 allows the exclusion of mortgage modification income. But only between the years 2007 through 2012.

What About Credit Card Debt Forgiveness?
In some cases, non-business credit card debt cancellation may be excluded from taxable income, but only if the cancellation is a result of bankruptcy or insolvency.

Where Can I Learn More About Canceled Debt Counting as Income?
The IRS has prepared an FAQ Page and Publication 4681 “Canceled Debts, Foreclosures, Repossessions, and Abandonments.”

Source(s): IRS, U.S. Code, CreditCards.com, and Small Biz Accounting Specialist.

Q+A: Federal Help for Homeowners

What is the “Home Affordable Modification Program”?
The “Home Affordable Modification Program” or HAMP is a federal program part of the Obama administration’s stimulus package that seeks to incentivize mortgage providers to reduce mortgage loans down to a monthly payment that borrowers can reasonably afford.

Will my monthly mortgage payment actually be reduced?
If your current mortgage bill is more than 31% of your monthly income, under HAMP mortgage providers are required to reduce the monthly payments to 31% of gross monthly income without going under.

Do I qualify?
There are several requirements for qualification:

1. Only first mortgages, which must have originated prior to January 1, 2009, apply
2. The loan must either be delinquent or reasonably expected to default.
3. The borrower must have suffered hardship (increase in expenses and/or decrease in income).
4. The mortgage must be for the borrower’s primary residence.
5. The mortgage amount for a one-unit residence must not exceed $729,750.
6. The borrower must consent to an escrow on real estate taxes and insurance.

What about second mortgages?
When the first mortgage is modified, a second mortgage will also be reviewed if it exists. The interest rate on your second mortgage will be reduced down to 1% for the first five years. Additionally, the term of the second mortgage will be increased to match the term of the first mortgage.

Where can I learn more?
You can visit http://hmpadmin.com for press releases and announcements or download the requisite forms here.

Source: Chicago Consumer Bankruptcy Conference Educational Materials and the Home Affordable Modification Program website.

Q+A: Are 401(K) Loans Secured Debts?

Q+A: Potential Embezzlement

Q: I am a limited partner. I suspect that the general partner converted funds belonging to the limited partnership. How do I sue on behalf of other limited partners?

A: A general partner is a fiduciary to limited partners, much as a director is to shareholders in a corporation. This means that the gp account for his actions to the limited partners and at all times conduct itself with the utmost good faith. If those rules were not observed then the proper remedy is a derivative suit – so named because the complaining party must sue in the name of the limited partnership. Before filing suit however certain questions must be answered and you may need to hire a forensic accountant to fully investigate. Finally, keep in mind that if the limited partnership or the general partner need(s) to file bankruptcy then a post-filing adversary complaint is your route.