Federal debt relief programs are offered by private companies involved in debt consolidation or settlement services. The companies have no affiliation with the federal government; the U.S. government does not offer individual debt relief.
Federal Debt Relief Program
The word "federal" in the title can be viewed as misleading to consumers since the federal government is not involved. If a user types "federal debt relief program" into an Internet search engine, multiple debt consolidation services will appear that all have federal debt somewhere in the company title or literature.
Debt Relief Claims
The Federal Trade Commission counsels consumers to be wary of debt settlement programs and that many companies offering services are not legitimate. These companies claim that they will negotiate with creditors to settle debt for less than the amount owed. The companies usually tell the consumer to stop sending money to creditors and send it directly to the settlement company, which will pay creditors on behalf of the consumer.
What Can Happen
Creditors are under no legal obligation to settle debts for less than the amount owed. Payments not received on time can be reported to the credit bureaus and sending funds to debt settlement services will delay payments to creditors. The Federal Trade Commission requires debt settlement companies to disclose fees, how long results will take, and what will happen if the consumer stops paying creditors.
The old adage of "if it's too good to be true it probably isn't" is an appropriate description for dealing with debt relief services. A consumer should be very careful and perform deep research prior to signing up with a debt relief company, even if the word federal is in the title. Checks with the Better Business Bureau and Federal Trade Commission are always a good idea.