Is it best to file a chapter 7 bankruptcy to surrender my house before or after the foreclosure?

It’s best to file the chapter 7 before the foreclosure to prevent receiving a 1099 for the deficiency amount after the sale. The IRS will try and tax a person for the difference in what the mortgage company was owed at the time of the foreclosure and the amount the property was sold for at the foreclosure sale. Example: If you owe $300,000.00 on house and it sells at the foreclosure sale for $175,000.0, the mortgage company will send a 1099 to you and the IRS for the difference, $125,000.00. This could be added to your gross income in the year the property was foreclosed and cause a tax liability. Most tax liabilities are non-dischargeable in bankruptcy. So we recommend filing before the sale and preferable before the get a judgment against you. There are some tax provisions that may prevent the 1099 income from being taxed in some cases. Please consult a tax attorney for this type of advice.