Debt forgiveness is essentially a gift of money to the debtor. If you owe a very large debt to a lender but are facing an extremely difficult financial situation, then the lender may discharge the remaining debt as an act of forgiveness. It is often applied to foreclosure situations under which the house has lost significant value.
Debt forgiveness is taxable, however. If you want to avoid this forgiveness tax, then you can either file for bankruptcy or prove your insolvency.
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