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Do You Qualify For Debt Relief?

December 6, 2018

In earlier posts, we’ve devoted considerable time and energy to discussing common debt related terminology. We’ve discussed terminology associated with debt consolidation, for instance. This terminology is critical to grasping this important topic.  Accordingly, our readers should definitely take time to master it. We’ve also covered concepts related to tax debt resolution, concepts such as offer-in-compromise, installment agreements and realistic collection potential. These concepts are also quite important.  For our readers trying to resolve debt issues, the first step is becoming acquainted the concepts and terminology related to debt resolution.  

In this post, we’ll discuss several of the more common forms of debt relief. As we’ll see, debt relief can take a variety of forms.  Not all of these forms are permanent. There are some forms of debt relief which are temporary.  That means that they only suspend a debt obligation for a limited period of time. The various types of debt relief that exist are important to understand.  That’s because, sooner or later, most people will utilize or benefit from at least one form of debt relief. 

Forbearance 

This type of debt relief is temporary rather than permanent. When someone places a debt obligation into forbearance, he or she is still ultimately responsible for repaying this debt.  Forbearance, however, allows the debtor to temporarily put their payment schedule on hold for a certain period of time. The most common types of debt which are placed under forbearance are student loans and mortgages. The procedure for accessing forbearance varies depending on the type of debt.  All forbearance procedures, however, will involve a formal request or application. Importantly, though payment obligations are temporarily suspended under forbearance, interest nearly always continues to accrue, and so debtors need to understand that their sum will be larger than it was previously when they eventually restart their payments.  

Deferment 

Deferment is a type of debt relief very similar to forbearance.  It’s distinguishable from forbearance when applied to student loan debt in one key respect. Like forbearance, deferment is a temporary form of debt relief.  That is, the debt is not erased but, rather, only placed on hold.  Unlike forbearance, however, deferment debtors do not accrue interest while the debt is suspended.  As a result, when the suspension ends, debtors still owe the same amount originally deferred. But, deferment is only available for subsidized student loans.  Unsubsidized loans don’t qualify.  Accordingly, the only type of temporary relief available for unsubsidized student loans is forbearance. 

Settlement 

Unlike the two types of debt relief mentioned above, debt settlement is a permanent solution.  It involves paying off existing debts with a sum less than the full face amount owed. Also unlike the two options above, debt settlement will have a negative impact on your credit score.  This makes perfect sense.  Think about it.  When a debt is settled, the debtor essentially declares an inability to pay back the full amount.  This, of course, is precisely the type of thing that’s frowned upon by lenders. Debt settlement can be negotiated for many types of debt.  The two most common types of debt to be settled are credit card debt and back tax debt.  

Obtaining a settlement isn’t easy.  To qualify you need to demonstrate with firm evidence an inability to repay your financial obligations in full. Settlement can be the right solution for certain debtors, however.  That’s because settlement can give a person a fresh start from which to build a better financial position. 

Forgiveness 

Debt forgiveness is similar to debt settlement in the sense that it is also a permanent solution. However, debt forgiveness is considerably more difficult to obtain than debt settlement.  That’s because it involves the complete elimination of a given person’s debt without any penalties. One of the more common instances of debt forgiveness is forgiveness of federal student loans. There are several ways to obtain forgiveness of federal student loans.  One such way involves completion of a “public sector” service program.  That permits a borrower to be eligible for student loan forgiveness at the time of program completion. For many student loan debtors, this is an attractive opportunity and it has drawn a considerable number of volunteers.  There are others.

Another instance of forgiveness is forgiveness of tax debt.  This type of forgiveness is less common and is quite difficult to obtain. Tax debt forgiveness is occasionally obtained, for instance, when someone is able to qualify for “innocent spouse” relief.  That could be a situation in which someone’s spouse brought in significant preexisting tax debt without their knowledge or control. 

A New York Attorney to Fight For You

As stated at the outset, debt relief can take both temporary and permanent forms. The appropriate type of debt relief for a person depends entirely on their financial situation taken as a whole. For some, a temporary solution such as forbearance will suffice.  This might work for someone with student loans that lost a job and needs time to find a new one. For others, with more serious financial issues, debt settlement might be the better option.

At Mackay, Caswell & Callahan, P.C., we understand debt relief in all of its different forms.  That’s because we work with clients in all different types of financial condition. We’ve seen enough cases that we’ve become well versed in this area. If you’d like to benefit from our expertise, reach out to one of our top New York attorneys today.  We’re be happy to assist.  With offices throughout New York, including in Albany, New York City, Rochester and Syracuse, we’re sure to have an office near you! 

Image credit: CafeCredit.com 

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