If I file for bankruptcy after foreclosure, will this remove the amount I owe on the unpaid mortgage?

When you fall behind in your mortgage payments, the bank can begin foreclosure proceedings on your home and sell it at an auction to recover the money you owe.  However, if the home sells for less than you owe the difference will be attributed to your as income.  For example, if you owed $300,000 and the bank foreclosed on your home and sold it for $250,000, the $50,000 difference will be attributed to you as income, which you will be taxed on.

There is a law enacted in 2007 that will extend through 2009 that will remove the $50,000 tax liability under certain circumstances.  If you are facing a tax liability, you should consult an attorney to determine whether this new law could help relieve your liability to the IRS.  If the law does not apply, you may still be liable for the tax debt.  Bankruptcy does not relieve many types of tax liability, so you should consult with an attorney that handles bankruptcy and foreclosure to determine what might be the best option.