In a word — IT DEPENDS!
Before you settle a loan for less than the amount you owe, make sure you consider the tax implications. It is always a good idea to get advice from your tax professional before you do anything!
(I am not a CPA and am NOT giving tax advice. Always, always speak to a professional before you make any decisions!)
Generally speaking, however, the IRS requires that your report anything over $600 in forgiven debt as taxable income. The lender will provide you with a 1099 for the debt and interest owed.
That being said, if you have more debt that you have assets, you are considered insolvent. In this case, you are NOT required to report the forgiven debt. If you have a negative net worth, then your CPA will need to prepare a personal balance sheet and file this with your tax return. There are some exceptions, and certain types of assets may not count in your net worth, so be sure you talk to your CPA!
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