Filed Chapter 7, thinking of walking away from house, Taxes??

[sac42375]

Hello, we filed chapter 7 last year, completed Nov 8, 2010. The house was included in the BK but we wanted to try and keep it. B of A finally put us in a Loan Mod trial period. Trial period is over and we still cant get any info from them. Surprise surprise!! We are underwater by $200,000 (Merced, CA). We are done. We are seriously considering walking away. This house has weighed on us for over 5 years now. Its not worth it anymore. We are concerned because we were able to get a modification when the housing first crashed. In 2008 (after endless phone calls to B of A) we were taken out of the Adjustable Rate pick a pay and placed into a fixed rate option. However, this is only for 5 years. We filed in BK 7 2010. Are we looking at any tax implications if we walk away. We owe 395,000 on the house is appraised at 210,000. How does the BK change our obligations to the home loan? It was discharged but we don't really understand what that means. Since we modified the loan in 2008 does that change our loan status from a non recourse loan to a recourse loan. Does the Modification constitute a refincance making us liable for taxes on the forgiven debt and can B of A come after us for the difference and sue us? And is this even a concern since we filed Chapter 7?

Thank You

[Charlie777]

When your mortgage was discharged in Chapter 7 your obligation to pay the note was removed, the bank kept their security interest, giving them the right to foreclose or to be paid on sale. Since you signed whatever you signed in 2008, which was before you filed BK, unless you reaffirmed during the BK, you don't owe anything and can indeed walk away. Reduction of debt via BK is not taxable.