Do I Pay Taxes on Discharged amount

[ineedalife]

Hello,
Just starting the process. Retained a Lawyer today. I lost my job due to plant closing in July 09. Top it off I built an addition on my house with CC's two years ago. $66,000.00 in CC,s( about half went into my house) After the addition was complete my bank would not refi my house due to the economy and drop in appraisal of my home, I only have about 10 grand in equity. My lawyer tells me chapter 7 was made for my case. I herd from somewhere on this forum that you have to pay taxes on the discharged amount. If this is true, Is it Fed and state? I am in Michigan.
Thanks for your help.

[Phillymanhere]

No, you don't pay taxes on the money discharged in bk.

But if you were to negotiate with the creditors and they settled with you for $66K less than you otherwise owed, you would owe taxes on that.

That is the downside of those "debt settlement" companies besides the fact that many of them are apparently useless anyway.