What is insolvency?
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Insolvency is a short step away from bankruptcy. You can be insolvent without being bankrupt, but bankruptcy is a legal form of insolvency. That is why the IRS recommends the aid of a tax professional when trying to determine if you are insolvent.
The "benefit" to being insolvent vs. being bankrupt, is that it is a temporary condition- one that you are working to remedy so that you do not have to declare bankruptcy. However, this leaves you open and vulnerable to liability whereas when you declare bankruptcy, it is a legal protection from such liability.
Again, it's complicated and warrants professional help.
What is insolvency?You may not have to worry so much. The House of representatives just passed a new bill 10/4/07 called the Mortgage Cancellation Tax Relief. Under this new bill any amount forgiven on a principal residence would not be taxed. Is not finalized yet is hopeful.
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