Debt forgiveness programs offer a hand up to consumers in need of financial relief during challenging times. Whether you have credit card, medical, student loan or tax debts, a debt forgiveness program helps reduce or eliminate what you owe. These programs, including ones for home mortgage forgiveness, are available to applicants who meet specific qualification requirements.
Debt forgiveness is not the same as bankruptcy. Although both types of programs forgive some or all your debt, multiple unique steps are involved when applying for debt forgiveness. Continue reading to learn vital information about the debt forgiveness programs available to you today.
Understanding the Basics of Debt Forgiveness
Essentially, debt forgiveness is the process of a creditor releasing you from repayment obligations pursuant to some or all your applicable debt. The debt might be an installment loan (home mortgage, auto, etc.) or a type of revolving account (credit cards, line of credit, etc.). Student loan forgiveness programs are also available and are hot-topic points of legislation in U.S. politics at the time of this writing.
On the surface, debt forgiveness creates the appearance of leniency and convenience. Tried-and-true debt forgiveness programs have become harder to find in recent times, however, as many were replaced by scam artists looking to profit from others’ financial hardship. What does this mean for an overly indebted person looking for financial relief today?
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Multiple types of debt forgiveness programs exist, which means research must be conducted to find the program most suitable for your needs.
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Research must also be conducted to prevent identity theft, fraud, and further loss of your funds through a well-presented scam.
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It is important to understand the differences between debt forgiveness, settlement, relief, consolidation, and bankruptcy programs (which are often mistakenly conflated by consumers).
Comparing Debt Forgiveness to other Debt Relief Programs
Multiple options for reducing or elimination your debt exist. Several important things to remember including the following: Debt forgiveness programs are not lending programs where you are required to borrow money to combine or otherwise restructure your debts. While debt forgiveness programs might have some negative impact on your credit score, they do not have the mandated repercussions found in bankruptcy programs. Bankruptcies are the closest types of programs to debt forgiveness programs, however.
Debt Forgiveness vs. Bankruptcy
Multiple types of bankruptcy chapters exist, although three available programs are the most enacted. Chapters 7 and 13 bankruptcies are the most common, with Chapter 11 placing a close third. One aspect of bankruptcy not found in debt forgiveness programs is the possible requirement to liquidate your assets to pay off as much debt also possible on your own. Bankruptcies also improve your credit (FICO) score once completed, albeit with specific limitations.
Debt Forgiveness vs. Debt Relief, Settlement and Consolidation
Debt consolidation refers to the process of combining some or all your outstanding debts and monthly payments into one new loan program. The amount of debt you owe does not change. The way you pay it all back, however, is altered to create more favorable rates and terms for you.
Debt settlement is specific to you paying off an amicably predetermined amount of your outstanding debt. In exchange, all accounts included in the settlement are closed. This type of program has potentially high negative credit rating ramifications, however. Some creditors fail to report the closing of the accounts to the credit bureaus. Others notate on your credit report how your debt was settled and not paid in full.
Debt relief is an umbrella term, under which many debt forgiveness programs often reside. A debt relief program is essentially any type of program designed to reduce or eliminate your debt and provide you with more financial freedom. For example, bankruptcy and debt settlement are both types of debt relief options. Additional examples of debt relief programs include:
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Debt management (APRs and monthly payments reduced via intervention from a third-party credit counseling agency).
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Credit counseling (involves working with a specialized finance agency to create a new household plan and budget).
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Debt forgiveness (continue reading below to learn what types of programs are available, how to qualify and apply).
Types of Debt Forgiveness Programs
Debt forgiveness programs are available for student loan, medical bill, and home mortgage debts. Programs are also available for credit card and Internal Revenue Service (IRS) tax debt. The primary purpose of each type of debt forgiveness program is to eliminate some or all your applicable debt. Each program accomplishes its purpose using an individualized process, however.
Student Loan Forgiveness
Student loan forgiveness programs are available to qualified candidates who meet specific program requirements. Student loan debt becomes overwhelming for many students’ post-graduation, especially if they cannot quickly find a job in their career field of choice. Additional adverse circumstances also arise as life moves forward, making it hard for consumers to pay back their student loans later in life as well. Both general and specific forgiveness programs are available. For example, the Public Service Loan Forgiveness and Teacher Loan Forgiveness programs help eliminate some or all student loan debt for firefighters/police (for examples) and teachers respectively. General student loan forgiveness is also potentially available to candidates experiencing qualified financial hardship.
Home Mortgage Forgiveness
Forgiveness programs such as those offered by the Homeownership Preservation Foundation have the primary goal of preventing homelessness among those in serious financial need. COVID-19-related programs prevented evictions and foreclosures for some time during the pandemic. Currently, most mortgage forgiveness programs offer temporary reprieves, which include delayed mortgage payments and/or a restructuring of your debt to make your monthly payments more affordable. Different types of forgiveness programs are offered through private mortgage lenders. The Government Sponsored Enterprise (GSE), FHA, VA, USDA, Fannie Mae, and Freddie Mac agencies also offer mortgage forgiveness to qualified candidates.
Tax and Credit Card Account Forgiveness
Credit card debt has the potential to quickly become insurmountable. Certain credit card issuers are open to discussing the possibility of a potential debt settlement with qualified applicants. Most account providers do not offer total debt forgiveness, however. To have your credit card debt eliminated you will likely have to file and complete a bankruptcy process.
The IRS facilitates an Offer In Compromise program along with multiple other options for eliminating some or all your tax debt. As it is with credit card issuers, the IRS is unlikely to forgive all your tax debt unless your circumstances are uniquely severe. This is because multiple options for repayment of outstanding tax debts are made available. For example, the IRS repayment plan permits qualified candidates to pay back their tax debt in monthly installment payments. Penalty abatement programs eliminate late fees, accrued interest and additional charges added to a person’s tax debt. Tax deductions and credits are also possible.
Debt Forgiveness - Requirements
Qualifying for any debt forgiveness program is reliant upon your income, type/place of employment and amount of debt owed. Verifiable medical, physical, or other qualified disabilities are also heavily considered. Certain lenders are also willing to consider debt forgiveness for candidates who became seriously ill, unemployed, or lost a primary breadwinner/loved one due to COVID-19. Essentially, all debt forgiveness programs are based on a borrower’s proven inability to repay their debts. Financial hardship must be valid and verified. Most times, lenders also require the exhaustion of all other options prior to approving a candidate for debt forgiveness.