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If you negotiate with the creditor and all or part of the debt is forgiven or the debt would be canceled under bankruptcy protection procedure - you are sent the form 1099-C.
The amount of debt forgiven is reportable on 1099-C - http://www.irs.gov/pub/irs-pdf/f1099c.pdf - generally is taxable, unless any exemption apply -- you should file a form 982 - www.irs.gov/pub/irs-pdf/f982.pdf - to proof your exemption - and might exclude all or part of canceled debt from taxable income.
Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the "insolvency" exclusion.
If you are eligible to file for bankruptcy protection - most likely you are insolvent and are eligible to exclude the forgiven debt from taxable income.
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