debt relief

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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 ?
Efforts to re-establish full market access would be bolstered by continued compliance with Greece's bail-out programme and the prospect of official sector debt relief, both of which are assumed in Fitch's sovereign rating assessment.
Twilio , the leading cloud communications platform company, today announced that National Debt Relief is replacing its legacy contact center technology and moving all its customer communications to Twilio.
5 billion and sketched new detail on possible debt relief as the IMF finally offered to help out after two years of hesitation.
The International Monetary Fund has urged eurozone finance ministers to be more specific in their commitment to a debt relief package for bailed-out Greece.
Djisselbloem's view marks a departure from the line taken by his eurozone colleagues, in particular the German finance minister, who has firmly ruled out debt relief for Greece in the past.
The eurozone gave Greece its firmest offer yet of debt relief in what finance ministers called a breakthrough deal that won a commitment from the IMF finally to return to taking part in the bailout for Athens.
Has anything changed recently regarding debt relief orders?
Global Banking News-August 13, 2015--Germany ready to offer Greece debt relief
The aim of our survey is to determine creditors' satisfaction with debt relief.
The IMF came out most forcefully on Thursday, arguing in a report that Greece needs large-scale debt relief alongside 50 billion euros in new financing through 2018.
But Germany, another major creditor to Greece, is resisting, even though it knows better than most what debt relief can achieve.
Debt relief as a means of settling citizens' inability to repay is a possibility provided by the state for the debtor to free itself of its theretofore unpaid debts after 5 years (if it pays 100% of the debts, then before) and start with a so-called clean slate.