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.