Legal Question in Tax Law in Florida

Based on the simple facts included in your question, you cannot avoid the additional tax caused by the "forgiving of a debt" by showing only that you have additional debt. Also, the creditor must send you an IRS form (1099-C) detailing the debt forgiveness, not simply "writing off the debt." The Federal income tax is based on net income rather than debt. For example, if the debt is related to a credit card debt, the amount forgiven is income and therefore taxable.

However, you may avoid or reduce the tax if you can 1) show expenses which offset the additional income, or 2) if the debt forgiven is one of the applicable exemptions to such income including: related to a mortgage foreclosure, student loan, debt discharged in a personal bankruptcy, business loan, etc. You can also reduce the taxable amount if it was written off because of your insolvency; you must calculate the effect of your insolvency on your ability to pay the debt. Suggestion: additional research of your situation.