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  1. #1
    Join Date
    Jan 2012
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    Default Is There a Mortgage That Can Not Be Discharged in Bankruptcy

    My question involves bankruptcy in the state of: California

    Is there a mortgage (given by lenders/banks) that CAN NOT be included in a Bankruptcy? I.e. if one were to file Bankruptcy, and receive a 1099 from a foreclosure, will income taxes have to be paid?

    My understanding is that income taxes will NOT have to be paid, since those mortgage(s) are included in the Bankruptcy… is this understanding correct?

  2. #2
    Join Date
    Sep 2005
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    Default Re: Is There a Mortgage That Can Not Be Discharged in Bankruptcy

    If you discharge mortgage debt in bankruptcy, you will not owe taxes on the discharged amount.

  3. #3
    Join Date
    Jan 2012
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    6

    Default Re: Is There a Mortgage That Can Not Be Discharged in Bankruptcy

    Ok I assume you're answer means ALL mortgages, whether those mortgages are for Investment properties or Principal residences?

    If my assume incorrectly, please do correct me.

    Thanks for your reply.

  4. #4
    Join Date
    Sep 2010
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    19,901

    Default Re: Is There a Mortgage That Can Not Be Discharged in Bankruptcy

    Depends whether the loan and been forgiven before the bankruptcy got filed or not. If you've been foreclosed and they issued the 1099, that's income if you don't meet the insolvency requirements to exclude it and it's just more tax liability that you bring to foreclosure. If they foreclose AFTER bankruptcy starts, then you're no longer liable for the debt and while they can take the house, it's not a forgiveness to you at that point (not taxable). It makes no different what kind of mortgage it is. (The principal residence issue is only important without the bankruptcy as purchase money loans are non-recourse in California so if they foreclose, you don't owe them further anyway).

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