You may have to pay income taxes after Foreclosure takes place if you don't file Chapter 7 or Chapter 13 Bankruptcy before the foreclosure sale. Once a house is foreclosed the lender will likely claim the lose on their taxes. This means you will get a 1099 for the difference between what the house sold for and what was owed to the lender or lenders. You can prevent this by filing chapter 7 or chapter 13 bankruptcy before the foreclosure sale takes place.