A poor housing market and high foreclosure rates continue to plague homeowners throughout the United States. In Maryland, a couple of lawmakers recently attempted to relieve some of the burden faced by homeowners with troubled mortgages by introducing the Maryland Mortgage Forgiveness Debt Relief Act. If passed, the new law would prohibit the taxation of what lawmakers refer to as "phantom income."

Phantom income refers to the difference between what a homeowner still owes and what he or she receives for the sale of a home in a short sale or following a mortgage restructuring.

When homeowners lose their homes through foreclosure or a short sale, they are required to pay taxes if a portion of their mortgage was forgiven or cancelled by the bank. Under the federal tax code, cancelled debt is considered income for taxation purposes. Unfortunately, homeowners facing foreclosure are rarely in a position to pay the additional taxes.

There is a federal law that in the past has protected homeowners in similar situations, but the law is set to expire. Maryland legislators have decided to step in to avoid the pending expiration. According to one of the legislators who introduced the bill, it would provide an extra cushion for people with underwater mortgages.

For more insight regarding debt relief, a personal bankruptcy attorney can help describe the debt relief options available to individuals who are facing possible foreclosure. Filing for Chapter 13 bankruptcy is one way of achieving the debt reorganization and mortgage modifications that could set many Missouri residents on the path for a financial fresh start.

Source: gazette.net, "Montgomery, Prince George's lawmakers introduce bill to help underwater homeowners," Danielle E. Gaines and Daniel Leaderman, Feb. 3, 2012