Phantom income arises and is taxable when one gets a discharge of indebtedness (DOI), or when one's debt is forgiven. Exceptions are when one has a contested liability or when one is bankrupt or insolvent. Did you ever know or even imagine that a forgiven debt can, at times, be taxable?
I didn't know, but I can imagine. When you borrow money, you don't pay tax on it as income, do you? If someone forgives the debt, it becomes a gift of money - income, doesn't it?
