If I go through Bankruptcy, do I have to report that as Income?
Actually no. The only times one has to report discharge of indebtness income is when the taxpayer is actually solvent. If you are insolvent and hence bankrupt, no income is recognized. The amount excluded from income must reduce the tax attributes, NOL carryovers, basis etc., so that income is not excluded twice.
You are insolvent if before the debt is discharge, your liabilities exceed your assets. It is a simple test.
