Am I liable for Federal taxes on the amount of the forgiven debt?

Generally, you would be liable for taxes on any forgiven debt but there is an exception if you have more debt than assets.

Yes, that's a significant advantage BK has to settlements on debt.

There is a good chance you will be responsible for paying taxes on the amount of debt that has been forgiven. While there are some exceptions, the devil will be in the details. More information on this interesting topic is on the IRS website at www.irs.gov.

The answer is actually considerably more complicated than many tax preparers seem to think. If a debt is forgiven outside bankruptcy, then you are liable for income tax to the extent that the forgiven debt increases your solvency above zero. Take the total value of all your assets; subtract the total of all your debt. If the result is a negative number, then you are liable for tax to the extent that the forgiven debt brings your new balance above zero. If you are 'balance-sheet' solvent before the debt is forgiven, then you are likely liable liable for the total of all forgiven debt. Consult a tax expert to be certain.