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Ask WALLSTREETESQ Your Own Question
Category: Bankruptcy Law
Satisfied Customers: 17080
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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Hello My name is Gary and I went through a chapter 7 in 2009.

Resolved Question:

My name is XXXXX XXXXX I went through a chapter 7 in 2009. I received my discharge in June of that year. I did not plan to keep my house. It went to foreclousure. I just received a 1099-A form from my mortgage company and am confused as to weather I owe any tax on the diff. between balance and fair market value. I checked with a IRS website about form 1099-A and it states that if the debt was canceled by a bankruptcy then there would be no tax. Could it be that simple? Thanks
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  WALLSTREETESQ replied 5 years ago.


Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati ON.


When you file for bankruptcy you will no longer owe any taxes on cancelled debt.


The IRS specifically exempts a person who received a discharge from a bankruptcy in owing any tax on 1099.


The most common situations when cancellation of debt income is not taxable involve:

  • Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

  • Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.


Also, The Mortgage Forgiveness Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence.

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