If you borrow money and are legally obligated to repay a fixed or determinable amount at a future date, you have a debt. You may be personally liable for a debt or may own a property that's subject to a debt.

If your debt is forgiven or discharged for less than the full amount you owe, the debt is considered canceled in the amount that you don't have to pay. But the law provides several exceptions—instances in which the amount you don't have to pay is not canceled debt.

Cancellation of a debt may occur if the creditor can't collect, or gives up on collecting the amount you're obligated to pay. If you own property subject to a debt, cancellation of the debt also may occur because of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification.

In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs. But the canceled debt is not taxable if the law specifically allows you to exclude it from gross income.

In Virginia, as in other states, when you borrow money and are legally obligated to repay it, you have incurred a debt. If for some reason this debt is forgiven or discharged for an amount less than what you owe, the forgiven amount is typically considered canceled debt and may be taxable as income. However, there are exceptions where the canceled debt is not considered taxable income. These exceptions can include situations such as bankruptcy, insolvency, certain types of loan modifications, and qualified principal residence indebtedness. It's important to note that the specifics of tax liability for canceled debts can be complex and are governed by both federal tax law and state statutes. Therefore, it is advisable to consult with an attorney or a tax professional to understand the implications of debt cancellation in your particular circumstances and to ensure compliance with all applicable laws.