If you’re struggling with a mounting debt burden, it is important to be aware of the important Federal Consumer Debt Relief Laws in the United States that are relevant to your situation. Here, we discuss four of the most important debt relief laws in the country pertaining to Mortgage Debt Relief, Credit Card Debt Relief, Student Loan Debt Relief and IRS Tax Debt Relief.
Mortgage Debt Relief Laws:
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
According to the Mortgage Debt Relief Act introduced in 2007, any debt reduced through mortgage restructuring or any mortgage debt that is written off because of a foreclosure qualifies for tax relief. This means any mortgage debt that has been written off doesn’t have to be reported as income and qualifies for a tax exemption.
The tax exemption limit has been fixed at $2 million. However, the mortgage should be on your principal home and not on a rental or commercial property. This Act was introduced to mitigate the effects of the Subprime Mortgage Crisis that set off such a punishing economic recession in the country.
Credit Card Debt Relief Laws:
Federal Credit Card Debt Relief Act
The U.S. credit card debt per household is estimated to be $15,611 if only indebted households or those households that owe credit card debt are taken into account. Being under credit card debt can be a very stressful experience for most people. Far too often debt relief agencies take advantage of distressed borrowers by charging fees without offering respite of any sort. The government is well aware of this and introduced the Federal Credit Card Debt Relief Act.
While the government cannot offer you financial assistance to help repay your debt, the credit card debt relief laws introduced by the government ensure that debt relief agencies abide by certain important rules.
The debt relief companies are not allowed to collect any fees till they have re-negotiated, settled or reduced the debt amount. At least one of the original terms of payment for the debt should have been changed in favor of the consumer.
There should be a written agreement that clarifies the settlement plan agreed to by both the consumer and the creditor. The consumer can pay only after at one of the payments have been forwarded to the creditor by the debt relief company.
A complete disclosure has to be made by credit card companies during their marketing and they are not allowed to mislead the consumer or misrepresent their services. The final settlement payments will be deposited into a ‘dedicated account’ which is in the name of the consumer. The consumer is allowed to withdraw money from this account anytime.
IRS Tax Debt Relief Laws
The IRS Tax Debt Relief Laws offer relief to those suffering from unusual financial hardships, because of which it might be difficult for them to pay the imposed taxes on time.
One of the solutions offered is to file for a “Not Collectible” status, which would notify the IRS that you’re unable to pay any bills. This stops all collection from the IRS for 10 years and protects you from losing your property or assets in lieu of the unpaid taxes. But you will still receive statements from the IRS that tell you how much you owe.
Another solution offered is to make small monthly payments to the IRS to pay the unpaid tax balance. You can make the payments by check, credit card or bank transfer. However, there will be bth fees and interest levied on the unpaid balance which only grows with time.
Another option is to qualify for an OIC (or offer in compromise). This allows you to pay less to the IRS than the full sum that is owed. It is a lot easier now to apply for an OIC than before and you don’t need a tax preparer’s help to do so. However, very few people can qualify for an OIC.
Student Loan Debt Relief Laws:
The Health Care and Education Reconciliation Act
Known informally as the “Obama student loan forgiveness” plan, this relatively new law aims to make college education affordable to one and all. The Health Care and Education Reconciliation Act relieves a lot of the debt burden on college graduates struggling to repay their student loans.
The law comes in two parts, Income-Based Repayment Plan and Student Loan Forgiveness. According to the Income-based repayment plan, graduates pay no more than 10% of their discretionary income, after having covered basic living expenses such as food and housing. Earlier, the maximum repayment was 15%.
And then, there is the Student Loan Forgiveness part, according to which responsible borrowers who have made regular payments for 20 years can have the rest of the loan forgiven – earlier, this was 25 years. For public service workers – teachers, police officers, military personnel, nurses – loan forgiveness is assured after just 10 years of regular payments.