Understanding the Debt Forgiveness Act

Struggling with your outstanding debts? Need some help to get your finances in order or to make a fresh start? You aren’t alone, and fortunately, help is available. However, don’t let misunderstanding the debt forgiveness act set you up for disappointment. Get the facts first.

What Is the Debt Forgiveness Act?

Simply put, there’s no such thing as a “debt forgiveness act” and no act exists under which it’s possible to instigate proceedings to have your personal debts forgiven. The only related act is the Mortgage Forgiveness and Debt Relief Act of 2007, which expired in 2017 and provided relief from the tax liabilities associated with having a mortgage canceled, notes Debt.org.

Mortgage Debt Forgiveness

A mortgage is a considerable financial burden, and in times of economic strife it may become untenable to make regular payments. Knowing how to get debt forgiveness in these cases is essential so that it’s possible to prevent the loss of your home and minimize escalating debt. Unfortunately, forgiveness is often only a consideration if it’s deemed you will never be able to repay your debt. In these cases you may be able to use a loan modification program to adjust your payments in exchange for a longer loan time, or the mortgage provider may foreclose on the loan, seizing the home that served as collateral.

A major problem relating to mortgage debt forgiveness is the associated tax liability. Any forgiven debt is classed as income and is therefore classed as part of your income for tax purposes. The Mortgage Forgiveness and Debt Relief Act of 2007 sought to rectify this situation by allowing debtors to exclude up to $2 million in forgiven debt, according to Debt.org.


The main way to have debt forgiven is through filing for bankruptcy. There are two main types of consumer bankruptcy:

  • Chapter 7: You’re relieved of your debts but may have to give up property you own.
  • Chapter 13: You pay into a debt repayment plan for a given period. At the end of the repayment period, any outstanding sum is forgiven, clearing the debt.

Disability Debt Forgiveness

If you’re totally disabled you may be eligible for relief from paying federal student loans or Teacher Education Assistance for College and Higher Education Grants, according to Federal Student Aid, an office of the U.S. Department of Education. If you have documentation that confirms you are totally and permanently disabled, complete and submit the relevant forms to ease the burden of debt.

Credit Card Debt Forgiveness

Some credit card providers may be prepared to forgive some of your debt in certain situations. The process involves contacting the card provider or debt collector and arranging a settlement payment (a proportion of the outstanding debt). If the creditor agrees to the settlement, you pay the agreed amount, and the remaining balance is wiped. This may sound like a great deal if you’re really struggling, but such an arrangement does have an impact on your credit rating, with a mark that remains for seven years, reveals Debt.com. During those seven years, you may find it more difficult to take out a loan or get lower interest rates.