Hi and welcome to Just Answer!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.
For property that is not your primary residence, forgiven credit card debts, car loans, etc - you may exclude from taxable income if you are insolvent.
To proof your insolvency for tax purposes - you need to fill the form 982 and attach it to your tax return. You are not required to provide any additional proof, documents or appraisals.
If you are insolvent - you may simply exclude the forgiven debt from your taxable income - that would be a simple option.
If you was insolvent before the debt was canceled - yes - you qualify for exclusion.
The Internal Revenue Code defines insolvency as the excess of liabilities over the fair market value of assets. - http://www.law.cornell.edu/uscode/26/usc_sec_26_00000108----000-.html
For exclusion from tax liability - you need to determine your insolvency just before the debt is canceled.
You do not need to file for bankruptcy protection to be considered insolvent. To determine your insolvency - use the worksheet on the page 6 in this publication - http://www.irs.gov/pub/irs-pdf/p4681.pdf Use all amounts and values BEFORE the debt was forgiven.
Just fill the worksheet - and it will be clear if you are insolvent - that will take a few minutes.
Let me know if you need any help.