What is debt forgiveness?
The average American owes about $40,000 in personal debt, which is a staggering. debt figure considering it does not include mortgages and other larger loan products. It can be difficult to pay off this debt, due to the high cost of living expenses. Debt consistently grows if left unaddressed, which makes it difficult to manage. For instance, people who can only afford minimum monthly payments on their debt will keep getting new debt added onto their balance. Debt forgiveness offers a way to alleviate the effects of debt.
Debt forgiveness is literal, and involves cancellation of some or all of your debt. However, true debt cancellation is really difficult to find. In many cases, debt forgiveness will involve a heavy personal cost such as bad credit, additional taxes and lost security.
How does debt forgiveness work?
Debt forgiveness is tailored differently for a variety of loans. For credit card debt, you may only qualify for some debt forgiveness after being unable to make payments for an extended amount of time. Even then, lenders will only agree to forgive debt if the borrower makes a lump sum or arranged series of payments on a part of their debt. Mortgage debt forgiveness involves loss of equity. You will be forced to give up your home under mortgage debt forgiveness, but will still be faced with taxes as forgiven mortgage debt is considered by the IRS as a taxable income. Some loans will not be eligible for debt refinancing. Your student loan, for instance, will not be forgiven even when you file for bankruptcy.