Debt forgiveness can relieve financial hardship by eliminating your liability for a portion of oustanding debts.
Description
Debt forgiveness occurs when a lender forgives or cancels part or all of an outstanding debt.
Qualifying Debts
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.
Exclusions
Student loans, auto loans and Internal Revenue Service (IRS) debt generally cannot be forgiven.
Methods of Forgiveness
Debt may be forgiven through debt settlement, bankruptcy, loan modification, foreclosure,or short sale.
Benefits
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
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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