Legal Question in Bankruptcy in California

I currently have a rental property with Bank of America and am currently 7 months late on the payment. I am working on a deed in lieu of with BofA. I plan on filing Chapter 13 Bankruptcy due to a large amount of personal debt which I have, but I don't plan on filing until 4-5 months from now. I am concerned about getting a 1099-C for the delinquent amount if I do the deed in Lieu of with BofA. Is there a benefit on waiting until I file BK and include my rental property. I don't plan on keeping this rental property anymore and owe around $200,000 but value is around $120,000. Any information you can give me is greatly appreciated.


Asked on 3/04/10, 10:17 am

1 Answer from Attorneys
Carl Starrett Law Offices of Carl H. Starrett II

You need to speak with a CPA to see if you are vulnerable to having debt forgiveness income. Debt forgiveness in bankruptcy is deemed nontaxable, but debt forgiveness received while insolvent is also nontaxable.

Let's say that you had negative net worth of $200,000 and received a 1099 for $80,000 as a result of this short sale. If you still had a negative net worth even after the debt is forgiven, you won't be taxed on the debt forgiveness.

I strongly encourage you to seek the help of a local bankruptcy attorney. Short sales typically benefit everybody EXCEPT the seller. If you are going to file bankruptcy anyway, pushing through a short sale rarely makes any sense.

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Answered on 3/09/10, 1:07 pm


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