How to Get Debt Relief and Avoid Foreclosure Through a Bankruptcy Attorney
Debt forgiveness or debt reduction is the cancellation or partial forgiveness of debt, owed by many people, corporations, governments, or individuals. The practice of debt forgiveness is gaining popularity for many reasons. It allows people to avoid the often high penalties associated with bankruptcy, collection agencies, wage garnishments, liens, judgments, and more. In addition, debt forgiveness prevents individuals from being stuck with debt they may not be able to pay. There are a number of different debt forgiveness programs available, so it’s important to understand how they work.
Most debt forgiveness programs begin by negotiating with the creditor in an attempt to reduce the total amount owed. In most cases, this means the creditor will lower interest rates and eliminate charges such as late fees and over the limit fees. After the creditor agrees to this arrangement, he or she may also agree to forgive a portion of the outstanding balance. This may mean reducing the principle itself, or only paying a small amount due at the end of the agreement.
Some debt consolidation companies offer services in which they negotiate with creditors on behalf of their clients in order to obtain debt forgiveness. These services can help the client to manage their debt and stop collectors from calling. However, in some cases these companies can also help individuals reduce the total amount owed. The goal is to get clients to the point where they are able to make their payments to creditors regularly and avoid accumulating new debts.
For debt forgiveness to apply to federal income tax liabilities, it is necessary for the creditor to be able to prove that the indebtedness arose as a result of an illegal act, an intentional act, fraud, or as a result of negligence. To establish that these circumstances happened, the agency representing the client must provide documentation of the applicable state law. In general, creditors’ losses must be paid by the defendant (the person who owes the money). If the court rules in favor of the creditors, they will be awarded a payment in full; if the court rules against the defendant, then the defendant will be liable for the entire amount of the forgiven debt.
When applying for debt forgiveness, individuals are advised to evaluate their financial circumstances and compare them with the requirements outlined in each debt forgiveness plan. There are three basic types of repayment plans: individual, group, and standard. Within each type, there are four specific methods for qualification: mandatory repayment, installment, flexible repayment, and incentive repayment. It is important to understand how each plan works so that individuals can easily assess if they meet the requirements.
Under the terms of each debt forgiveness plan, the settlement company will pay the balance owing directly to the creditor. Creditors who accept settlement payments are not required to settle at all. The goal for both parties is to reach an agreement where the client remains current on monthly payments while at the same time reducing the total amount owed. Creditors who agree to debt forgiveness will require a monthly payment that is greater than the combined monthly payments they were currently making under the plan, in addition to late fees and penalties for late payments. Those clients who have a history of poor credit or bankruptcy will also require larger payments.
Debtors who qualify for debt forgiveness will find it much easier to reestablish their credit scores once their debts have been fully paid off. Once creditors see that a client has been able to repay his/her obligations, they will view him/her as less of a risk, which will encourage them to consider taking a more favorable approach to future negotiations. The courts may also consider a debtor’s credit scores when deciding on future garnishments or liens. Individuals with bankruptcy settlements will also experience a large increase in their current credit scores after the process is complete.
Individuals who qualify for debt forgiveness may also qualify for loan modifications, if they can prove that they cannot reasonably afford their monthly payments. Loan modification plans are designed to modify the terms of an individual’s existing mortgage, and allow him/her to make more affordable payments each month. To apply, borrowers must meet certain criteria related to income, debt history, and current expenses. In order to apply, borrowers must be living on the property they wish to modify, and must be informed about the process. Applying directly to a lender will enable a borrower to determine if he/she qualifies for a modification; however, borrowers should still consult a credit counselor to discuss his/her options, and how the process might work for him/her.