Expert: Mark J. Markus- California Bankruptcy Attorney - 10/6/2007

Question
QUESTION: I find myself in the situation of having to claim bankruptcy.  I am also going to give up my house.I bought the home for 610K, refinanced three times and now owe 675K.Fair market value estimated the home is now worth 610. Will I have to pay taxes on the 65K I took out even if I am going bankrupt? There is also the question of the almost 7K in property taxes that are due in a few months.  Thanks!  Julie

ANSWER: Congress is actually debating a new law right now that would make forgiveness of mortgage debt income non-taxable.  When or if that will be passed, I don't know.  For the time being, it will depend on your state's laws regarding deficiency judgments on mortgages.  However, if you file bankruptcy before the foreclosure, or at least before the mortgage lender issues a 1099, then it will not be income to you.

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QUESTION: I am in California. What can the time frame be between the bankruptcy and the foreclosure in order for the monies to not be considered income? I will be filing bankruptcy, then I will have my house foreclosed on.  I am not late for my property taxes yet (they are due in three months)but I can not afforded them.  Will I have to pay them even if I am foreclosed on before they are due?  I herd that their has to be an lean on the property for the lender to have to pay the taxes. So if there is not a lean, does this mean I have to pay them? Thanks!!!

Answer
As I stated before, if you file the bankruptcy before the foreclosure, there will be no income to you from the debt forgiveness or deficiency.  Property taxes follow the property.  If your house is foreclosed, you don't have to pay the property taxes.