Your current situation does not come into the picture. In order to claim insolvency you would have to look at your assets and debt liabilities as of the date that the debt was cancelled. You haven't told us what tax year the 1099-C was issued for, so we're left guessing here but that is the date you need to use for examining whether you were insolvent for this purpose. Many people are upside down on their homes today, but in 2006 they had a lot of equity. So when the debt was cancelled is vitally important.

This is not an injured spouse situation. If you filed a joint return with your spouse income from both parties must be reported. Injured spouse only applies in a case where one party has a federally collectable debt such as defaulted student loans or child support and the other person is not liable for that debt. In this case, by filing a joint return you each agreed to be jointly liable for the tax liability on your joint income.