Open Question: Had some problems with finances and a mortgage company settled out my 2nd at 12 cents on the dollar?

My 87,000 loan was settled for 6,800. However I was given a 1099 around 80K... Federal forgave me on the debt but I'm having a hard time w/ California. I owe $5,000 for my state tax but I think one might be able to get around... any good lawyer tax man out there might be able to help me? Will compensate for your time. Theres an insolvency worksheet I was told to complete so I guess I need to do that and see what it totals...