1099's from 1st and Heloc using Insolvency clause

[coolgurka]

While reading another thread about foreclosure and the 1099's with regards to the exemption of 250K capital gains for a single person, I have this question.

I have a first mortgage of 180K and a HELOC for 150K. House is upside down for 100K (estimate at this point, perhaps upside down more , I suspect)I stopped paying Feb 1 2009, expecting NOD anytime.

If I foreclose and get 1099's from both the 1st and the Heloc, can I then using insolvency be exempt from having to pay taxes on both 1099's from the Ist(Wells) and the second? (Citi) Or can I also use the 250K capital gains exemption since I have lived in the house since 2002 when i bought it?
I am thinking of filing within the next 3 monts) BK Ch 7 to discharge the 1099's. I also have high CC debt but if I am not liable for the 1099's I may not have to be in such a hurry to file.

Any help would be most appreciated!

[Goodgrief]

While reading another thread about foreclosure and the 1099's with regards to the exemption of 250K capital gains for a single person, I have this question.

I have a first mortgage of 180K and a HELOC for 150K. House is upside down for 100K (estimate at this point, perhaps upside down more , I suspect)I stopped paying Feb 1 2009, expecting NOD anytime.

If I foreclose and get 1099's from both the 1st and the Heloc, can I then using insolvency be exempt from having to pay taxes on both 1099's from the Ist(Wells) and the second? (Citi) Or can I also use the 250K capital gains exemption since I have lived in the house since 2002 when i bought it?
I am thinking of filing within the next 3 monts) BK Ch 7 to discharge the 1099's. I also have high CC debt but if I am not liable for the 1099's I may not have to be in such a hurry to file.

Any help would be most appreciated!

I have done some research on this subject, but by no means am I an expert. If its your primary residence I am pretty sure they can't 1099 your first mortgage, the heloc may depend on what it was used for. If it was used for home improvements or to purchase your home you should be in the clear on the heloc. I will try to find the article I read on the subject.


Irs findings: The first paragraph sums it up

http://www.irs.gov/individuals/article/0,,id=179414,00.html

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.\

Hear is an article about second mortgages from HHM the moderator here.

http://askmethner.com/?p=197

[Goodgrief]

this is an article on here about insovency, it pretty much lays it out.

http://www.bkforum.com/showthread.php?t=39863

Here is the form from the Irs you need to file

http://www.irs.gov/pub/irs-pdf/f982.pdf

From the Irs:
Example. You were released from your obligation to pay
your credit card debt in the amount of $5,000. The FMV of
your total assets immediately before the discharge was
$7,000 and your liabilities were $10,000. You were insolvent
to the extent of $3,000 ($10,000 of total liabilities minus
$7,000 of total assets). Check the box on line 1b and include
$3,000 on line 2.
Line 1c
Certain individuals may need to complete only a
few lines on Form 982. For example, if you are
completing this form because of a discharge of
indebtedness on a personal loan (such as a car loan
or credit card debt) or a loan for the purchase of your principal
residence, follow the chart on page 2 to see which lines you
need to complete. Also, see Pub. 4681, Canceled Debts,
Foreclosures, Repossessions, and Abandonments, for
additional information including many examples and
completed forms.
TIP
If you made an election under section 108(i) to
defer income from the discharge of business debt
arising from the reacquisition of a debt instrument,
you cannot exclude on lines 1a through 1d the
income from the discharge of such indebtedness for the
taxable year of the election or any subsequent taxable year.


So in a nut shell if your total liabilities (before settlement) outweigh your total assets your in the clear. Sounds like a no brainer to me.

[coolgurka]

Thank you GoodGrief for the helpful reply.

I have been trying to avoid doing Ch 7 BK, but since I have a significant amount of CC debt, more than 14k per CC( Just CC ,no other debt) letting that debt go towards possible judgements would still leave me vulnerable to "trouble with the law" even if i could get my Foreclousure of the first and second , tax issues to go away with the insolvency clause.

I believe it would be better to file BK and have EVERYTHING wiped away, get the 10 yr black mark on my credit report then to have a bunch of judgements and charged offs on my report?? What do ya think?

[Goodgrief]

I definatley feel your pain. I was all set to file ch7 until I got a $30k inheritance. Now I have to "dispose" of the money, but part of it is in a house that has to be sold. That could take a year in this economy. I have been researching debt consolidation to see if I might just pay everything off with that. The major down side with DS is you don't get the finalization as you do with a ch7. You still leave yourself open to future liabilities. But since both roads BK/DS follow the same path of being a deadbeat, i will start the journey. I will make the choice of which one to do when i get to that crossroad. I just want this all to go away but i guess "nothing easy in life is worth having". Good luck