If the lender sends an IRS Form 1099 for the remaining mortgage debt after foreclosure sale of business property, then can we eliminate the debt declaring chapter 7 bankruptcy?
-- Anonymous
A.
The intersection of foreclosure and tax is a very complicated area that may require a tax professional. But your question appears to be different: the tax form sent upon foreclosure doesn't reference a debt to the lender that survives the bankruptcy. A 1099 reports on a transaction to the IRS.
The foreclosing creditor may be reporting your "receipt" of sale proceeds, since for tax purposes, a foreclosure sale is treated just as if you had sold the property to a buyer in the usual manner. This is so even though all of the proceeds went to the secured lender.
The foreclosing creditor may be reporting discharge of indebtedness income triggered by the sale.
In either event, these reports don't represent a debt to the creditor. They may be the basis for a debt to the IRS for the tax year involved. Recent taxes aren't dischargeable in bankruptcy.
A tax professional can help you understand the impact of the foreclosure on your situation.
