When Does Debt Disappear?

If you have mountains of debt piled up and the bills, statements and collection agency notices arrive with frightening regularity, you may find yourself daydreaming of the debt disappearing into thin air. In reality, debt rarely disappears without hard work and financial sacrifice on your part. Learning situations when debt disappears (or doesn't disappear) can help you determine the best path for becoming debt-fee in your financial situation.

Personal Bankruptcy

Be cautious if you're planning to file bankruptcy in the hopes of having your debt disappear. While some debts may be discharged as part of bankruptcy agreements, other loan types (for example, student loans) can be difficult or impossible to eliminate without actually paying them off. Keep in mind that filing for bankruptcy doesn't make your money problems disappear; in fact, you'll likely face bankruptcy notations on your credit report for seven to ten years. Lenders, landlords and potential employers may view bankruptcy on your credit report and decide to pass you over in favor of other candidates with less-risky financial backgrounds.

Debt Settlement

There's a possibility that some of your debts will disappear as part of debt settlement processes. In this situation, lenders negotiate with you (or your representative) to reduce the overall amount owed to increase their chances of being repaid. There are some drawbacks to relying on debt settlement to make debts disappear, however. Some lenders will reduce your overall debt on the condition that you pay the remainder as a lump sum; if you can't make that large payment then they may not be willing to bargain. Second, debt settlement can also tarnish your credit history, since it indicates to lenders that you were unable or unwilling to make good on previous debts, loans or credit lines in the past. Debt settlement can hurt your credit; meeting with credit counselors to discuss your options for making debt disappear doesn't necessarily show up on your credit history until you take action.

Company Bankruptcy

Some consumers hope that if their credit card company or lending bank goes bankrupt, they're off the hook for debts owed. Unfortunately, your debt won't totally disappear just because the lender went bankrupt. Instead, another company has probably purchased the debt and will contact debtors regarding repayment. If a company has purchased your debt at a discount, it's possible that you'll be asked to repay less than what was originally owed just to settle the account.

Statute of Limitations

The statute of limitations refers to the time period during which lenders may file a lawsuit on debts owed, according to Credit Report.com. States have different rules about how long the statute of limitations may run depending on the type of debt in question. For example, credit cards and auto loans are considered different kinds of debt. Collection agencies may still send notices demanding payment on debts for which the statute of limitations has expired.

Payment

A foolproof way to make debt disappear is to pay the debt off. Start by making small, on-time payments on those accounts with the highest interest rates. When possible, negotiate with lenders for reduced interest rates and waived fees. As you pay off different debt accounts, funnel additional money into paying off other debts until they disappear.