Q: I have a 1099c for a settled loan I cosigner. If I try for insolvency do I have to report my 401k as an asset.
A:
Short answer: yes.
When you examine whether you qualify for insolvency, read IRS publication 4681. Page 6 includes an insolvency worksheet. Insolvency looks at all your assets (and equity in assets) as well as income to determine whether you are insolvent or not. If your assets, equity, and income are negative (calculated to the time of the debt cancellation) when the liabilities are subtracted out, you may be insolvent. However, the insolvency exclusion will be limited to the amount of insolvency. For example, if the balance comes out to -$100, then you can exclude $100 of the canceled debt.
That said, you should probably contact a professional to see what options are available to you (since there can be other ways to exclude the debt).
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