The Mortgage Debt Relief Act of 2007 – which was extended through 2012 – allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring and mortgage debt forgiven in connection with a foreclosure also qualifies for the relief.
So, if you filed for bankruptcy in Michigan in 2011 and received a 1099 from your former mortgage lender – don’t panic. Just make sure your income tax preparer is aware of the law. Or – if you do you own taxes (not such a good idea in my opinion) make sure you fill out your forms properly so that you don’t get hammered with an unforeseen tax bill.