Bankruptcy May Shield Homeowners From Forgiven Mortgage Debt Tax (1)

Declaring bankruptcy may be a last-ditch option for homeowners who lost a tax break on mortgage debt they had forgiven after the foreclosure or short sale of their home.

“If they’re suddenly facing what could potentially be tens of thousands of dollars of IRS debt, that’s going to be an incentive to file a bankruptcy that might not be filed otherwise,” said Geoffry Walsh, a staff attorney at the National Consumer Law Center who focuses on foreclosure prevention, consumer bankruptcy, and other consumer credit issues.

For a decade prior to 2018, individuals who had mortgage debt ...