Don’t Short Sell When Filing Bankruptcy

June 6th, 2009

Many people filing for bankruptcy protection ask the question whether they should proceed with a short sale on their real estate.  The bottom line, is that if you are filing for bankruptcy, you should forget about a short sale in most situations. The short sale then triggers a host of problems that the borrower does not discover until later. But if you are filing bankruptcy, there is usually no reason for the short sale.  In fact, the short sale generally hurts more than helps you. The short sale actually triggers a taxable event and allows the lender to issue a 1099-A or 1099-C.  This is sent to the IRS and essentially states that you received income that you now need to pay taxes on.  In the forgoing example, you would then need to pay taxes on $100,000 of income.

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Entry Filed under: Miscellaneous

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