Debt Forgiveness Definition and Legal Meaning

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What is Debt Forgiveness?

Debt forgiveness is the process by which a creditor chooses to “forgive” or discharge any debt that is owed by an individual. While this is a rare occurrence, some companies will do this as a way to reduce debt that is owed and clear up older accounts that were not previously paid.

Purpose and Meaning of Debt Forgiveness

When it comes to debt, many people know how stressful and overwhelming it can be especially when they have more than they can handle. This can happen to individuals before they realize that they have taken on more debt than they can pay with their income.

As debt builds due to various factors such as interest charges, people often find themselves in over their heads. Because of this, they may begin searching for companies that can help or programs that are designed to help those in debt.

While many years ago, debt forgiveness was more widely accepted, in today’s business world, it does not happen as readily. When looking for companies or organizations that provide debt forgiveness, you may discover that while some are legitimate, others can turn out to be scams.

Because of this, it is recommended that if you are looking for organizations that help with debt forgiveness, you speak to a financial advisor first. This will keep you from falling victim to certain scams thus making your debt problems much worse.

For those seeking debt forgiveness, you may have seen advertisements for companies that can help with this. While most can help you with this, others may be offering only debt settlement which you will still be required to pay a certain amount to the creditor.

When it comes to debt forgiveness, you should keep in mind that a company that chooses to discharge an individual’s debt takes a loss overall. Because of this, there are not many companies that do this, without attempting to make something from the debt.

The bottom line when it comes to debt forgiveness is that while finding legitimate programs can be a challenge, some do exist. Finding the right program to fit the individual needs of someone in debt can be one of the best ways to get out from under the stresses that debt can cause.

Examples of Debt Forgiveness

  • Student loan forgiveness: This is a type of loan forgiveness that is provided by certain parties to those who have taken out student loans to pay for their education. While there are many of these options available, it is important to understand the terms and process of having this type of debt forgiven.
  • Credit card debt forgiveness or settlement: If you owe a high amount of credit card debt, you may be able to negotiate with various companies. While in some cases, a credit card company may choose to forgive your debt altogether, in other cases they may help you by reaching a settlement where you pay only a portion of what you owe.
  • Mortgage forgiveness: When a person purchases a house through a mortgage loan and then finds themselves unable to pay, they may qualify for certain mortgage forgiveness or settlement options. Although this type of forgiveness typically only exists in times of housing crises, you may be able to find companies that will help you reach a settlement agreement instead.

Legal Terms Associated with Debt Forgiveness

  • Debt consolidation: This term refers to those individuals who have an enormous amount of debt that they are struggling with paying back. Debt consolidation companies exist to help the individual pay off the current debt by consolidating it into one single monthly payment at a negotiated rate.
  • Bankruptcy: This is a term that, in essence, completely absolves an individual of most debt that they have. Filing bankruptcy is something that should not be entered into lightly as it can have long-term negative effects.
  • Debt settlement: This term is used when forgiveness of a debt is not an option, however, the company or companies involved agree to accept a small amount of money. This typically is done through a third party who negotiates on behalf of the individual, but can also be an agreement between the company and the individual.

Reference Legal Explanations

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  • "Debt Forgiveness Definition and Legal Meaning". Legal Explanations. Accessed on June 18, 2024.

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