CAN I DISCHARGE MY INCOME TAXES IN BANKRUPTCY?

Yes, occasionally, I can get rid of your income taxes through bankruptcy. And not only that, a Bankruptcy can prevent your having to pay a high amount of income taxes the year after your foreclosure . . . if you end up having one.

Section 61 of the Internal Revenue Code...

...states that debts which are discharged or forgiven are part of your gross income for the year it is forgiven. So, when your first forecloses and your second is left holding the bag, the second may send in a 1099 to the IRS with your name on it.

IF YOU GET A FORECLOSURE...

...and if you previously refinanced the house and pulled money out, you may get a 1099 for the deficiency amount left over after the home was sold. So, if you owed $600,000 and your house sold for $500,000 you might be getting a 1099 for $100,000 next year! Not only that, the Lender may also be able to sue you for the deficiency as well, especially if you got a stated income loan during your refi.

Bankruptcy can often fix both of those problems.

Internal Revenue Code Section 108...

...gives you a deduction for that 1099 but only if you put it into a bankruptcy, and Lenders don't like to sue in Bankruptcy Court because it is a lot harder for them to win than in the California Superior Courts.

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