A debtor undergoing a Chapter 11 reorganization under the bankruptcy laws who receives a discharge of his or her liabilities has realized income but can exclude the debt reduction from gross income.

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Under the bankruptcy laws, a debtor who receives a discharge of his or her liabilities has realized income but can exclude the debt reduction from gross income under certain circumstances. This is known as the "bankruptcy exclusion" and is authorized under section 108 of the Internal Revenue Code.

A Debtor Undergoing a Chapter 11 Reorganization Under the Bankruptcy