Per IRS Publication 908 Bankruptcy Tax Guide, page 2:
Bankruptcy proceedings begin with the filing of either a voluntary petition in the United States Bankruptcy Court, or in certain cases an involuntary petition filed by creditors. This filing creates the bankruptcy estate.
Generally, when a debt owed to another person or entity is canceled, the amount canceled or forgiven is considered income that is taxed to the person owing the debt. If a debt is canceled under a bankruptcy proceeding, the amount canceled isn't income. However, the canceled debt reduces other tax benefits to which the debtor would otherwise be entitled. See Debt Cancellation, later.
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