Government-run debt help is something more and more people are turning to. When exploring personal debt relief options, beware of those who make promises they cannot keep. It is true, you may be able to qualify for certain types of government grants (money that does not have to be repaid), but there are usually obligations you must meet on your end of the deal as well.
Federal Student Loan Forgiveness
You may be able to have all or a portion of your federal student loan forgiven, but you must fulfill a few obligations as part of the deal. Obligations may include volunteer service (Peace Corps, AmeriCorps, VISTA), military service, practicing medicine or being a teacher in particular types of communities, or meeting other criteria of the forgiveness program. The federal Public Service Loan Forgiveness program benefits those who enter and continue to work in a full-time public service job (nursing, teaching, military, police and fire) for a minimum of ten years, while making their monthly loan payments during employment. After 120 payments, the remaining principal and interest on the loan is forgiven.
Mortgage Forgiveness
Normally, if a lender agrees to cancel or forgive a debt you owe, the amount forgiven is viewed by the IRS as income you would not have otherwise had, that must be included on your tax return. In 2007, the federal government enacted the Mortgage Forgiveness Debt Relief Act, which essentially allows you to exclude forgiven debt (related to your primary residence) from your taxable income, for the year in which the debt was cancelled. The exclusion includes forgiven debt that results from a mortgage loan restructuring or foreclosure and applies to calendar years 2007 to 2012. Up to $2 million is eligible to be excluded.
HUD Housing Counseling
As of March 2011, government-run debt help includes nearly $73 million in counseling grants provided to more than 500 national, regional and local HUD (Department of Housing and Urban Development) housing counseling agencies. HUD-approved counseling agencies can provide you with free advice on home buying, renting, foreclosure, reverse mortgages and credit issues. You can find a Foreclosure Avoidance Counselor or Housing Counselor near you by contacting HUD (1-800-569-4287).
Debt Relief/Management Programs
According to the FTC (Federal Trade Commission), a trustworthy credit counseling or debt relief agency should have counselors who are trained and certified in budgeting and money management, debt management and consumer credit. As a result of your counseling, a credit counselor may have you enroll in a debt management plan. The plan allows you to pay off your debts, typically in three to five years, through monthly deposits given to your credit counseling agency, which then pays your creditors. The National Foundation for Credit Counseling can put you in touch with government-approved counseling agencies.
Bankruptcy
If worse comes to worst, the federal government allows you to petition for bankruptcy protection through the federal court system. If you qualify for Chapter 7 bankruptcy, you may be able to eliminate all or most of your debts. Chapter 13 bankruptcies require you to repay your creditor with a three- to five-year payment plan, similar to a debt management plan. A debt management plan will be significantly less damaging than bankruptcy to your credit rating and your ability to obtain additional credit.
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