I previously wrote about how some individuals with student loans can have them discharged if they should  unfortunately become permanently disabled.  What a wonderful relief this must be to someone who has had the trauma of becoming disabled !  But wait, apparantly it is not that simple. A woman in New Jersey had her $91,000 debt discharged but then she was informed that the $91,000 would be reported to the IRS as “cancellation of debt income”.  A more in depth article on this subject on yahoo.com  states that  ”The Department of the Treasury has specifically stated that student loans cancelled due to the Death and Disability Discharge (Section 437(a) of the Higher Education Act of 1965) are taxable”.   However, it appears that if you have yourself declared “insolvent” prior to the debt discharge, there may be a chance that you will not be taxed, but you must know to declare yourself insolvent, or the insolvency exclusion may not apply to you. So be sure to consult an attorney or accountant if you are considering filing for a disability discharge.   To read a  yahoo article on this subject, click here.

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