OK - let's separate two things - getting a 1099 and it being taxable income. Just because she gets a 1099 doesn't mean the income is taxable. In fact, she probably WILL get a 1099 even if it's NOT taxable.

It is not necessary for her to file bankruptcy to make any Cancellation of Debt (or COD) income not taxable. She can use the provisions of the tax code in the link Phil gave.

On the other hand she may need to file bankruptcy for other reasons. So I'm not saying BK is wrong for her - just that it's wrong for the purpose stated: to avoid having taxable income from the cancellation of debt.

In addition to a good BK attorney, she also needs a good tax professional, at least for this year.

--Peter