Quote Quoting flyingron
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If you are going to declare bankruptcy, you do not want to negotiate anything with lenders.

But you seem to be confused over how TAXES are computed. Your INCOME (including regular wages AND the forgiven debt) LESS your deductions ($5950 for the standard) is what your tax is computed against.
Except that you got it wrong Ron...Its your standard deduction PLUS your personal exemption, which is a total of 9750.00 for 2012...assuming that you are single with no dependents.

Its 100% excludable in a bankruptcy, and could be 100% excludable in an insolvency.