Define Debt Forgiveness
Debt forgiveness can relieve financial hardship by eliminating your liability for a portion of oustanding debts.
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Description
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Debt forgiveness occurs when a lender forgives or cancels part or all of an outstanding debt.
Qualifying Debts
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Unsecured debts--such as credit cards, personal loans, and medical debts--may be forgiven. Mortgage loans may be forgiven if the situation meets specific criteria.
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Exclusions
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Student loans, auto loans and Internal Revenue Service (IRS) debt generally cannot be forgiven.
Methods of Forgiveness
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Debt may be forgiven through debt settlement, bankruptcy, loan modification, foreclosure,or short sale.
Benefits
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Debt forgiveness relieves the burden of outstanding debts by allowing you to settle the debt for less than you owe or erase the debt completely.
Drawbacks
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Forgiven debt must be declared as taxable income unless the debt was forgiven as part of a bankruptcy or foreclosure proceediing or you were insolvent at the time it was forgiven. Debt forgiveness will also impact your credit negatively.
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References
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