Government Debt Relief Programs

While the government cannot step in and remove your debts, there are some debt relief programs designed to protect you from undue harm at the hands of your lenders. These programs offer a few key forms of help. First, they can protect you from predatory lenders. Second, they can offer assistance if you have federal debts. Finally, these programs can protect you from further harm by giving you an option to close your debts permanently.

Mortgage Relief

Mortgage relief from the government is not offered to all debtors equally. Specific relief acts were designed in unique formats in response to the 2007 mortgage crisis to help the neediest homeowners only. The first provision allows for homeowners who took adjustable rate mortgages they can no longer afford due to skyrocketing interest to refinance to a lower rate. This is available through the Federal Housing Administration; it is a penalty-free refinance, not a debt cancellation. Second, the IRS does allow homeowners in foreclosure between 2007 and 2012 to be excused of some tax obligations. This act, the Mortgage Forgiveness Debt Relief Act, applies only to borrowers who lost their asset in foreclosure and were forgiven of a remaining balance on a mortgage even if the asset did not sell at a high enough rate to cover the debt.

Student Debt Forgiveness

If you have a federal student loan, you may be eligible to have your debt forgiven if you choose a career in public service. You may refinance a private loan into a federal loan for the purposes of this program. However, you will have to make debt payments on the loan for 6 years prior to finding relief. Income restrictions apply. The Federal Student Loan Forgiveness program is extended to those in the armed forces, low-paying teaching jobs and other public service jobs.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is one way the government offers protection from undue harm incurred at the hands of your lenders. If you cannot pay your debts at the current schedule without facing foreclosures, defaults and other hardships, you may be eligible for Chapter 13 protection. In this case, you will submit a new payment plan for your debts. A court will determine how much of the debt must legally be paid and then ask your lenders to accept your new terms. If the lenders accept, you will be able to keep the loans alive and start a new payment system.

Chapter 7 Bankruptcy

Sometimes Chapter 13 is not an option because you simply do not have the income to meet the expenses appropriately. In this case, Chapter 7 bankruptcy will be your last line of defense against legal action by your lenders. When you declare Chapter 7, a judge will liquidate your assets in order to pay down a settlement on your outstanding debts. You will not have control over the process, and debts will be paid according to their seniority instead of your preference. However, in the end, you will be freed of remaining debt obligations.

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