In the wake of the recession and housing market disaster the government has implemented a few ways to help Americans stave off bankruptcy and foreclosure. However, as 2012 continues there is a battle in the White House about which programs will be renewed, if any.
In 2007, the federal government passed a bill to give struggling homeowners a break when seeking foreclosure alternatives. Prior to the bill, anyone who received debt cancellation from their mortgage lender was required to report this amount as income on their tax returns, making it likely they would be held financially responsible for the waiver of such debts. The 2007 Mortgage Debt Forgiveness Relief Act allowed for homeowners to exempt waived mortgage debts up to $2million from being calculated as reportable income. Although homeowners are still required to report these transactions, they haven’t been held financially liable since 2007. However, this tax break is set to expire at the end of this calendar year, which very well could put a damper on short sales and other foreclosure alternatives that are working hard to help the market recover.
Student Loan Debt
As one of the fastest growing debt sources among Americans, student loan debts have become an epidemic in today’s economy. With job market instability, the government launched a program to keep student loan interest rates low a few years ago. Interest rates once hovered around 5 to 6%, costing the typical graduate thousands of dollars in interest payments alone each year. The interest rates have been held down to about 3.5% for the last few years, but if the government doesn’t renew the bill loan holders could be facing an increase of thousands of dollars per year.