It seems like most of the tax liability is due to the cancellation of debt income.
If the balance loan is canceled by the lender(NOrmally you get a Form 1099C for that) than to the extent you are insolvent you will not report the canceled debt as income.
To determine insolvency you need to prepare a personal financial statement as of the day before the debt was discharged. A personal financial statement would show all assets at their then fair market value and all outstanding liabilities. If the liabilities exceed the value of the assets, then you may defer recognition to the extent of the excess of the liabilities over the assets.
Section 108(a)(1)(B) provides that, "Gross income does not include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer if ... the discharge occurs when the taxpayer is insolvent." Section 108(d)(3) further provides that, "The term ‘insolvent' means the excess of liabilities over the fair market value of assets. With respect to any discharge, whether or not the taxpayer is insolvent, and the amount by which the taxpayer is insolvent, shall be determined on the basis of the taxpayer's assets and liabilities immediately before the discharge."
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.