debt relief

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Debt relief

Reducing the principal and/or interest payments on Less developed country loans.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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,

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
References in periodicals archive ?
The Highly Indebted Poor Countries (HIPC) Initiative is the largest multilateral effort aimed at providing debt relief. According to the World Bank, as of June 2006 "nominal debt service relief of more than US$59 billion has been approved for 29 countries through the HIPC Initiative, reducing their Net Present Value of external debt by approximately two-thirds.
ITEM: A report from carried by the Pacific News Service on June 14 praised the "long-sought debt relief for Africa," saying: "The agreement on 100 percent debt relief for developing countries announced by finance ministers from the eight largest industrial nations (G-8) ...
The Prime Minister led discussions of the debt relief issue at the opening session of the talks at a luxury cliff-top hotel complex in Okinawa.
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Contrary to what Hondurans have been led by the government to believe, debt relief will come slowly to the country, contingent on meeting a number of conditions imposed by the International Financial Institutions (IFI).
Let there be debt relief. Let there be long-term aid.
During the last few months, desperately needed progress has been made on debt relief for the world's poorest countries.
The racing business can make a bad debt relief claim if they are not on Cash Accounting and a debt is six months past payment date.
"In keeping with the Norwegian Plan of Action on Debt Relief for Development the debt will be cancelled without taking any funds from the budget.
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25810), Marco Di Maggio, Ankit Kalda, and Vincent Yao explore how student debt relief affects credit and labor market outcomes.