RE: A discharge will able the creditor to declare it as a loss in their own tax filings.
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My speculation.. just IMO.
The unpaid debt is too large to be converted into equity but also too big to be discharged.
I’m guessing a partial discharge and partial conversion into equity. The discharged portion will be carried in by the former creditors as a additional NOL to the joint ventured LBHI.
Then, the exception to COD income is applied to the discharged portion due to the joint and the sell down of 31B claim.