Government Debt Reduction Programs

For the most part, debt reduction programs tend to fall under the private sector. That is to say, private companies have created programs that enable consumers to work with creditors and debt collectors in an effort to reduce or even remove debt. The federal government has not yet created its own sweeping debt reduction program, but Congress has provided several pieces of legislation that help indebted consumers to seek relief and try to find a way out of their debt. Taking the right step in handling debt is a matter of considering your situation and deciding how you need to proceed.

Mortgage Forgiveness

The Mortgage Forgiveness Debt Relief Act, enacted in December 2007, gives homeowners the ability to work with their lenders to reduce or modify their home loan to make it more manageable. In particular, the Mortgage Forgiveness Debt Relief Act provides homeowners with the means of excluding certain income that would otherwise be used to pay off the loan. Lenders must then work with homeowners to determine how much of the loan can be paid off. This enables homeowners to try to pay off some of the loan, rather than risk foreclosure and being forced out of their home.

Fair Debt Collection Practices

The Fair Debt Collection Practices Act provides consumers with some relief from creditors and debt collectors who attempt to gain the required payment by what amounts to constant harassment. This act establishes that creditors are limited to certain hours of contact (not before 8 a.m. and not after 9 p.m.) and that they may not harass or utilize unfair methods in their debt collection practice. Also, consumers have the right to make a written request for the debt collection contact to stop, and collectors are required by law to honor the request and cease all contact.

Bankruptcy

While filing for bankruptcy will create an immediate hit on your credit report, it is a perfectly valid option for those who need to reduce extensive debt that they have no real chance of paying off. Filing for Chapter 7 or Chapter 13 bankruptcy (both established for personal bankruptcy) can offer a financial break to those who are struggling with debt. More specifically, a Chapter 7 filing will liquidate many assets, excluding such property as a car or even furniture. This type of filing can make your home vulnerable to creditors, so Congress has also provided for a Chapter 13 filing. This type of filing gives those who still have an income the opportunity to retain their paychecks and any personal property and also provides for the debtor to pay back the debt rather than relinquishing such personal property as a house.