For clarity's sake, lets get this out on the table. Say a couple has their Ch 7 BK discharged in 2012, including their upside-down mortgage liability. Now, it is pretty much a fact that the BANK cannot sue, etc for the deficiency if the couple does a short sale or foreclosure in 2013 (barring fraud, of course) since their Ch 7 discharge erased that possibility.
The bigger question is whether their possible IRS tax liability is also washed away. Since the Debt Forgiveness Act expires on Dec 31 2012, it seems that a foreclosure or short sale after the first of the year would expose that couple to the possibility of receiving a 1099 for the deficiency - one that the IRS can absolutely pursue. It seems that the only way to avoid that heavy tax bill would be to be able to claim insolvency for the purpose of discharging that tax liability on Form 982.
So...regardless of their Ch 7 discharge, does a person have an IRS tax liability if they foreclose or short sale in 2013? If so, shouldn't the insolvency worksheet make that go away? Any other recourse if the insolvency numbers do NOT fall in the couple's favor?
The bigger question is whether their possible IRS tax liability is also washed away. Since the Debt Forgiveness Act expires on Dec 31 2012, it seems that a foreclosure or short sale after the first of the year would expose that couple to the possibility of receiving a 1099 for the deficiency - one that the IRS can absolutely pursue. It seems that the only way to avoid that heavy tax bill would be to be able to claim insolvency for the purpose of discharging that tax liability on Form 982.
So...regardless of their Ch 7 discharge, does a person have an IRS tax liability if they foreclose or short sale in 2013? If so, shouldn't the insolvency worksheet make that go away? Any other recourse if the insolvency numbers do NOT fall in the couple's favor?
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