I live in California. In 2006 we did a cash-out refi and HELOC. Due to the failure of our business, we filed for Chapter 7
BK in 2008. At the time of the BK, we had $100K in assets, $2MM in liabilities and $225K in income. Though our income has averaged $225K post-BK, it's unpredictable.
We received a bank modification in 2010, but due to our erratic income, we decided allow the bank to foreclose on the house. The two mortgages total $800K, and the house is worth $550K. Other than retirement money ($100K) and $30K in cash, we have no other assets.
From what I understand, we will not be required to pay taxes
on the gain of the house once the bank sells it at auction due to the Mortgage Debt Relief Act, and because we had proven insolvency in 2008. My concern is that the Mortgage Debt Relief Act expires in 2012 (unless its extended a second time). Presuming it expires, before the bank forecloses, is it possible that I will get stuck paying taxes on the gain, or am I forever off the hook because of the BK?