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Abstract: 

A lender negotiating debt forgiveness or a workout with a delinquent or defaulting borrower should be armed with the knowledge of new potential tax consequences that debt cancellation income can present to the borrower having to decide between “fight” or “flight.” Comparing the facts of the recent Bobo decision and a contrasting hypothetical scenario, the author illustrates issues both lenders’ and borrowers’ counsel should keep in mind when working out delinquent loans.

Keywords: Bobo v. Commissioner of Internal Revenue, debt forgiveness income, cancellation of indebtedness, taxation of cancelled debt, cash-for-keys, deed in lieu, loan workout, mortgage workout

Affiliations:  1: Richard S. Alembik, PC.