is it better not to file bankruptcy as i'm insolvent?

Question

if you go to this link and read about 2. Is Cancellation of Debt income always taxable section, it says if someone files bankruptcy 'or' become insolvent, they don't owe the debt by lenders.
Link:
http://www.irs.gov/newsroom/article/0,,id=174034,00.html

1 home is already foreclosed/auctioned out, and the other home is to be foreclosed very soon... i'm working with a bankruptcy lawyer (already paid him in full) to file it, too.

do you think i shouldn't have filed bk since i'm insolvent (unable to pay 1099 if charged by irs)?

and if i did shortsale for 1 of the house, i'd still owe 1099 but i fall under insolvent category.
i'm confused, as i am going through bankruptcy process and unsure if it wasn't necessary for me to go through?

Answer 1

Bankrupcy relieves you of owing the original debt - being insolvent doesn't. What the article is referring to that you cite is that if you are declared insolvent, you won't owe income tax on the amount of debt that was forgiven, it doesn't have anything to do with owing or not owing the original debt.

Answer 2

please note that they say that to prove insolvency can be quite complex, and it takes accounting professionals to do so. When the IRS is telling you something is quite complex to prove, basically figure that you have a better chance of getting struck by lightning or getting a shot at a lunar walk. File your BK and get it over with. I would however. have used an attorney who is familiar with how the 1099 from the bank works, and can find a way to include the chargeoffed debt in your BK. Check with your attorney on that. Once that is done, you can carefully start to rebuild your credit.

Answer 3

If you owe a deficiency on the house you should file bankruptcy. If you are concerned about tax debt, that isn't dischargeable.

You should talk with your attorney, you've already paid him.