Hello,
I believe the question was more "Can I include a debt that is charged off (before it becomes canceled via settlement or otherwise) in the worksheet for insolvency (as a pre-tax liability).
e.g.1) You owe $10K; 2) you default on the loan; 3) the loan gets charged off and sent to collections; 4) Collections reaches out to you and offers to settle for $3K; 5) the 7K is canceled debt sent via a 1099C.
When filling out the Statement of Insolvency, can you list that 10K (a charged off debt, prior to being canceled) as a liability? In other words, does a debt that is not in good standing/sent to collections still qualify as a liability (wherein it can be subtracted from your assets).
Yes, you will need to include the 7K as income, which creates a potential TAX liability, unless you can prove insolvency. But when calculating insolvency to avoid said tax liability, are you allowed to include a debt that has been charged off as as pre-tax liability?
