But...even if the 1099 is not taxable, will the forgiven debt be counted as income?

Huh? Forget the 1099; it's just a piece of paper.

As both Peter and I have told you, the question to be settled is whether there will be any taxable forgiveness of debt income resulting from a foreclosure. Debts discharged in bankruptcy are not taxable by law (IRC 108(a)(1)(A)). She has to file bankruptcy for reasons totally unrelated to the mortgage. So, what's with the dithering? The only remaining question is whether the mortgage debt will be discharged in the bankruptcy, and guess who has the answer to that question. One thing I can tell you. It won't be if she doesn't get the danged thing filed.

Phil
Rule Your Retirement Home Fool