Foreclosure and the IRS
Within this last week, I have had three debtors that are filing for Chapter 7 bankruptcy let a house go back to a mortgage company. It happened this year and they are filing their Chapter 7 case before the end of the year to avoid any repercussions with the IRS as it relates to the IRS. The Chapter 7 will stop any type of 1099 being issued by the IRS. What this means, the IRS thinks that you have a financial gain with letting the house go back to the mortgage company even though you didn’t benefit from it. I had one debtor who was in the predicament that had to file a chapter 13, because they lived in California and if they filed a chapter 7 bankruptcy, they would end up losing their cars, because they paid them off and California will only protect one car with their state exemptions. They would have been ok if they would have kept the lien on the car.
If you have any questions about what to do, consult a bankruptcy attorney before doing anything with your assets.
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