Dudley B. and La Donna K. Merkel - Page 23

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          discharge of indebtedness and the consequences thereof were                 
          necessary and inevitable.                                                   
               Title 11 of the United States Code (the Bankruptcy Code)               
          offers bankruptcy relief for various types of debtors.  1 Collier           
          on Bankruptcy, par. 1.03, at 1-21 (15th ed. Revised 1996).                  
          Chapter 7 of the Bankruptcy Code governs liquidation of a debtor,           
          colloquially known as “straight bankruptcy”, and provides the               
          mechanism for “the collection, liquidation, and distribution of             
          the property of the debtor”, culminating in the discharge of the            
          debtor.  6 Collier on Bankruptcy, par. 700.01, at 700-1 (15th ed.           
          Revised 1996).  Being thus relieved of his debts, the debtor                
          coming out of bankruptcy is accorded a fresh start.  To preserve            
          that fresh start, the debtor pursuant to the bankruptcy exclusion           
          is not burdened with an immediate tax liability on account of               
          income from the discharge in bankruptcy of indebtedness.                    
               For the insolvent debtor outside of bankruptcy, until (and             
          unless) all of his debts are settled or discharged, he is not in            
          the identical fresh start position as the debtor coming out of              
          bankruptcy.  Section 108(d)(3) recognizes that fact and provides            
          for a calculation of insolvency and not an actual marshaling and            
          sale of assets followed by a satisfaction of debts.  When                   
          Congress codified the net assets test, see supra sec. II.C.2.,              
          the insolvency exclusion was made available to all insolvent                








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