Debt Forgiveness: Forgiven But Not Forgotten

The long saying goes, moments gone wrong, wrong moments to come!! One 'wrong' is an adjective, one 'Wrong' is a verb. Go figure!!!

This content is dedicated to those who are bearing the debt burden tight hard on their back and wonder when this pain will be over.

The topic of debt forgiveness is a very offbeat one to talk about. Because first of all, a debt is taken out to be paid back with interest but not to be forgiven! Still, there are good debt settlement and credit counseling companies that talk to lenient creditors and get our debts forgiven or settled. We must be really thankful to these people.

But the question is not even this. The fact we are surfacing out here for is: even if debts are forgiven, is it forgotten?!

Eventually, let's start to understand how things are not forgotten, even though they are forgiven. And debts are nothing special—the same principles apply to them.

1. How Debts Are Forgiven

Debts are of two types: secured and unsecured.

Unsecured debts can be forgiven, but secured ones—those that have assets, collateral, securities or equities with them—just can't be forgiven. The creditor will pull the compensation out of your properties.

The unsecured debts, too, barely get forgiven; instead, most of the time they get settled. This means forgiving a certain portion of the debt, but not in whole.

We want our debts to be taken into consideration and get favorable discounts during the payback period. Yes, we can very well do that, but the procedure is tiring, which I believe we are ready to accept.

At the start, you have to check whether or not your debt is valid for forgiveness. Those that are valid will include unsecured debts, as said above. Among these, credit cards, payday loans, and student loans have the highest chance of getting forgiven.

But personal loans get tough, as these are seen to be potential investments by the banks. The banks don't want to lose money on them because they carry favorable interest rates and are made up of large amounts.

How Payday Loans and Credit Cards Are Forgiven

These two types of credit have the highest interest rates. And those that fly high, fall heavily!

Credit cards can get settled even at 40% to 50% of the original amount owed. And if the debt is very old, then you can have a large amount significantly reduced.

The same thing goes for payday loans. They are easily forgiven, for even if you pay low, the lender still gets a good profit as the interest rates are high.

But you seriously need to work with a debt settlement company to be really successful while negotiating the debt characteristics and terms. No matter how old the debts are, if you want to settle it all by yourself, then expect not to get a favorable response from the creditor's side. The settlement companies know the tricks and will get the job done professionally.

If you can come up with an ornamented answer to "why you want your debts to be forgiven," other than "because I can't pay in full," only then you should try a DIY (Do It Yourself) debt settlement.

How Student Loans Are Forgiven

Student loan forgiveness is a very complex situation, as there are many criteria one needs to fulfill to qualify for this.

The prominent criteria are: you need to hold some type of public service position, be a teacher, or be in the army.

There are several loan forgiveness programs offered by the U.S. Department of Education or the federal government itself.

For private student loans, it's very difficult to seek forgiveness, as these lenders rarely offer any room for it.

There is also a program called Death Discharge. This program states that a student loan will be forgiven or discharged if the student dies during the tenure of the loan term. If you know of someone who died having a federal or private student loan, then you should notify his/her family about this.

What's the Impact of Bankruptcy on Debt Forgiveness?

When you file for bankruptcy, it's more or less like declaring you can't repay your debts. Now, nobody files bankruptcy for one or two debts. People go for bankruptcy when they have multiple unmanageable debts, which have no chance of being paid in full.

We have 2 bankruptcy chapters—Chapter 7 and Chapter 13—and each influences debts in different ways.

Chapter 7 readily wipes out most of your debts, but the chances of losing properties related to secured debts are very high. Expect to see your personal properties liquidated if you are filing for Chapter.

On the other hand, Chapter 13 is called the reorganizing bankruptcy, where many of the unsecured debts get cleared, but not the secured loans. For these secured debts, you will be proposed a repayment plan that may or may not change the loan terms and rates.

If you wish to file for bankruptcy, then talk with lawyers and get some counseling. Bankruptcy is tough and you'd better get yourself educated.

2. Are Debts Forgotten in Pen and Paper Memory?

We have two time limits when talking about debts:

One is the statute of limitations (SOL), and the other is the credit reporting time (CRT).

Both are different and you should not confuse one with the other. The SOL is different for different states, with the average SOL timeline being 5 to 7 years.

The time until the SOL is active, you are officially and legally bound to pay off the debt. But once you get the debt account settled or get it discharged, then the SOL is no longer valid along with the debt.

But the problem is with the CRT. Even if your debts get forgiven or discharged, the credit bureaus remember them. They have classifications of debts, how they are paid off, and how long they will be reported on credit reports.

Bad debt accounts usually linger for a decade on your credit reports. You can dispute the accounts if you want, and for that, you will have to follow the disputing credit report errors guideline. It can be a troublesome task!

However, if the debt accounts and their information are correctly displayed on the reports, then you may not be able to remove them.

Also, this whole thing makes up the credit history you are carrying. This will heavily impact your credit score, no doubt about that.

Plus, things are different with judgments, collections, and bankruptcy, for instance. Judgments stay on credit reports for somewhere around 7 years, and so do accounts in collections and bankruptcy chapter 13.

But Chapter 7 bankruptcy can have a really bad impact on your credit report, as this hangs around for 10 years from the date of filing.

Hence, don't think that getting a debt forgiven means also forgetting it. For the pen and paper memory—that's the credit report—bears the scars for a significantly long time. And the worst part is, we can't do anything much about it.

3. Can You and Should You Forget the Past Debt Mess You Made?

What about you and your head? Is it that easy to forget the debts in your mind? This part is a bit ethical and psychological.

In fact, putting it precisely, you should never forget the debt stories you hung onto. Remembering the past helps to construct a better future.

Learn from past mistakes. Re-evaluate the reasons why you fell into such debts before, and how you can avoid such circumstances from repeating themselves.

Incurring debts is a highly habit-oriented affair that can be eradicated by practicing smart spending habits.

But I would say, we all deserve a little bit of harassment from the collectors, a little wage garnishment, one or two lawsuits and judgments, and bad marks on credit reports. Otherwise, we won't learn our lessons!

It is from war that we learn to value peace!
It is from hatred and isolation that we learn to value love!
And it is from carrying a debt burden that we learn the importance of being debt-free!