Whatever the bank sold the car for didn't pay off the debt you owed to the bank, so the bank canceled the remaining debt (rather than taking you to court and suing you for it) so remainder of the debt to the bank is considered income to you.
Its always much cheaper to pay the tax on a canceled debt than it is to pay the debt itself.
If you were not in bankruptcy, you may want to read up on Insolvency and see if that applies to you, you may be able to reduce or eliminate the taxable amount of the canceled debt if you were insolvent at the time the debt was canceled.
♪♫•*¨*•.¸¸♥Lisa♥ ¸¸.•*¨*•♫♪
