[iscrewyou]

Not judging you at all, I promise. I found it ironically funny that forgiving debt could lead someone into bankruptcy. Talk about a win-win situation.

[freedomben]

Yep. In my case we were overjoyed having finally worked out a deal with the bank, only to discover that now I was in debt to the IRS instead of the bank :'(

It sure feels like your government is shitting on you during an already tough situation.

[dmix]

So the idea is the bank gave you a loan then forgave it, so it’s now income? That’s a big leap in logic and sounds evil considering you never consider that when getting a loan, you only expect the internet to accrue.

[briandear]

It is income. Someone gave you money. Otherwise, why wouldn’t a company “loan” you a higher salary and then just “forgive” the debt? Or, you could set up a company to loan yourself money — the company deducts the “loss” and you don’t pay taxes on the gain.

[Retric]

The principal is presumably income, however the interest or fees should not be. The IRS will even occasionally cancel debt that’s mostly fines and interest without considering it income.

[dmix]

Like all laws there should be some context. But I guess you’re right it’s an easy loophole to exploit and the simpler the tax law the better.

[dsfyu404ed]

The IRS definitely (as definite as a capricious federal bureaucracy can be) let you make payments on the taxes in that situation.

[colejohnson66]

This. Despite what many people think, the IRS doesn’t want to bankrupt people. They’ll work with you and set up a payment plan if necessary.