debt relief

(redirected from Debt forgiveness)

Debt relief

Reducing the principal and/or interest payments on Less developed country loans.

debt relief

The forgiveness of a legal obligation, in whole or in part. In real estate, it occurs most frequently when a mortgage lender agrees to accept a deed to the property rather than go through a foreclosure, and further agrees to accept the property as full payment for the loan, even though it is not worth the full amount of the loan.In such a situation the borrower has received debt relief and must report that as income for tax purposes. There is a loophole: if the debtor was insolvent immediately before the debt relief, and insolvent immediately after the debt relief, then he or she need not declare income to the extent of the insolvency.


The debtor owes $125,000 on his home and 20,000 on credit cards. The debtor's only asset is his home, which is worth $110,000.

Netting assets and liabilities before the debt relief results in the debtor being insolvent by $35,000. After giving the home to the bank and receiving forgiveness of the balance of the mortgage loan, the debtor now still has credit card debt of $20,000 and no assets at all. The debtor is insolvent by $20,000.

Because the debtor is still insolvent, and the debt relief did not cure his condition of insolvency, there is no taxable income.

See also Publication 17, “Your Federal Income Tax,” Chapter 12, “Other Income,” available at the IRS Web site,

References in periodicals archive ?
Under certain criteria, borrowers are eligible for an up to e1/425,000 debt forgiveness from banks, and up to e1/42,500 on tax dues.
The funding, including $170 million in debt forgiveness and grants for debt relief, comes through the International Monetary Fund and will help the countries contain the Ebola epidemic.
If Athens gets debt forgiveness would it not strengthen this country's case for a reduction of our huge debt burden?
The assistance came in the form of discounted rates, debt forgiveness, weather-proofing, efficiency programs and support to charitable organizations.
Unfortunately, the cost to American taxpayers of such debt forgiveness programs is rising, and the chief beneficiaries are colleges and universities, which can offer debt forgiveness while simultaneously raising tuitions.
How To Eliminate Taxes On Debt Forgiveness Daniel J.
According to this directive, such solutions may include, for example, a reduction in the interest rate, a grace period, lengthening of the repayment period, consolidating various loans into one, even partial debt forgiveness, the CBC added, explaining that "the latter option can be applied within a broader framework of settlement, if all other solutions of restructuring are judged as unsustainable and provided that the borrower agreed to repay a reduced amount of the balance of the loan within an early and specified time period".
With the mortgage debt forgiveness act set to expire at the end of the year many home owners are making the decision to do a short sale now and avoid paying thousands of dollars in taxes.
Rather than waiting to get rid of debt through bankruptcies, governments should "mandate debt forgiveness.
Political observers, however, noted that he has long been opposed to debt forgiveness and may be simply responding to consistent pressure from the Democratic Party.
After he got the password for billions and billions of euro tip, debt forgiveness and billions and billions of euros favorable credits to avoid the country's bankruptcy and after everyone took a breath from the Greek marathon, George said: "we must now ask the nation whether it wishes to accept the measures and conditions according to which we can get the money.
Summary: The debt forgiveness, subject to approval by the German government, would cover a four-year period.