Legal Question in Credit and Debt Law in California

File a claim with the bankruptcy court before the legal time limit expires, just in case. Whether your "loss" is tax-deductible, and whether the debt might possibly be legally non-dischargeable in bankruptcy, depends on the nature of the underlying lawsuit (you didn't say). Judgments based on criminal acts, fraud, and DUIs, for example, are not dischargeable, but you would have to sue the debtor in bankruptcy court to have the court determine that they are non-dischargeable. This type of lawsuit is called an "adversary proceeding." I'm not aware that Uncle Sam will give you free money just because someone didn't pay a civil judgment rendered in your favor. Watch out for legal time limits.