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But, OTOH, she thinks that she will not have to pay taxes on that amount if she goes into bankruptcy - which might also delay the entire foreclosure it seems. Hopefully she will be seeing her bankruptcy attorney asap.

She needs to see a bankruptcy lawyer as quickly as possible. She will receive a 1099 C regardless of whether or not the forgiven debt is taxable. Bankruptcy might not be needed for her to avoid taxes on the forgiven debt. If bankruptcy is required to avoid taxes, it needs to be filed before the foreclosure.
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