Mike has covered the topic well. I think he made one error though, fully depreciated equipment is subject to depreciation recapture rules and would be considered "ordinary" income" subject to regular income tax - not capital gains.
A simple example. You have a tractor you paid $10,000 for in 1991. Its fully depreciated so it has a book value of "$0". The bank takes it to cover a $13,000 loan. The tractor sells for $12,000 at auction. The farmer has $10,000 of depreciation recapture also called section 1031 - taxed at 25%. He has a $2,000 capital gain (currently taxed at 10%) and he has a $1000 of dept forgiveness - taxed at regular rates.
You'll be subject to all taxes unless debt is discharged though bankruptcy.
Last word of advice - NEVER USE A LAWYER FOR TAX ADVICE!!!!!! I've seen more estates and bsinesses screwed up because of lawyers then I ever dreamed possible.
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