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Elizabeth Prentice
Elizabeth Prentice, Attorney
Category: Bankruptcy Law
Satisfied Customers: 174
Experience:  Managing Attorney for one of the largest consumer bankruptcy firms in America.
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I filed a Chapter 7 and discharged both of my mortgages in

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I filed a Chapter 7 and discharged both of my mortgages in late 2009, but continued to reside in the house and make payments on the first mortgage even though I did not reaffirm either of the mortgages. Subsequently, in 2013 I recently went through a short sale for much less than the amount of the first mortgage and all of the second. Will the IRS try to tax me on any of this deficiency? It never occurred to me, until I read something. The companies made it clear they would not pursue any collection effort since it was discharged in bankruptcy.
I am a bankruptcy attorney and would be happy to assist you. You will only be required to pay the taxes on the deficient amount if the lenders report a 1099 to the IRS and yourself. In general, a short sale would require you to pay the tax deficiency. However, since the debt was technically considered "discharged" in your bankruptcy, you normally would not. The caveat is that during a short sale you sign a contract stating all terms and conditions of the short sale. This then takes precedence over your bankruptcy. It is why most attorney's recommend that a homeowner retain an attorney to review and/or negotiate the terms of the short sale. Thus, it is very possible that you will be required to pay taxes on the deficiency. In order to determine this, you should contact the lenders and inquire whether you will be receiving a 1099 form. If you do receive one, you should contact a tax attorney to determine your options. I am not permitted to provide you advice in the tax realm. IRS Circular 230 Notice: To the extent that this communication concerns federal tax issues, this communication is not intended to be used and cannot be used by any taxpayer to avoid penalties.

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