I am in that process now...LS...H filing for bankruptcy...and yes...the debt that is erased then becomes income in the eyes of the IRS and you owe taxes on that...my tax attorney suggested that who ever handles the B negotiate with the IRS to lower it to 10% of what is owed...as a settlement offer...for us that would still be about $4,000!!! But that is better then $40,000!
