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If you have cancellation of debt income you do not have to include the debt in income to the extent that you are insolvent at the time immediately before the cancellation of debt. Insolvent immediately before the cancellation of the debt is determined by taking all of your liabilities and deducting the Fair Market Value of all your assets that you had immediately prior to your cancellation of debt. To the extent that your liabilities exceed your assets you are insolvent.
Your assets for this purpose include the Fair Market Value of everything you own. This also includes the fair market value of the collateral that secures the debt that was canceled. It also includes assets that are exempt from the reach of creditors under the law. This includes pension plans and other types of retirement accounts.
Your liabilities include the entire amount of any recourse debts, your non-recourse debts that are not in excess of the Fair Market Value of the property that is security for the debt, and the amount of non-recourse debt in excess of the fair market value of the property subject to the non-recourse debt to the extent non-recourse debt in excess of the fair market value of the property subject to the debt is forgiven.