Debt Relief in the United States
Debt relief is the partial or total forgiveness of debt, or the slowing or stopping of debt growth.
The Mortgage Debt Relief Act of 2007
The Mortgage Forgiveness Debt Relief Act of 2007 has made it possible for you to avoid paying income tax on forgiven mortgage debt. The act was scheduled to expire December 2012, but received an extension for another year.
Debt Relief: The deadly journey
Debt relief is the process of eliminating partial or total debt and bringing an end to accumulating debt burden that is owed by the individuals or the corporations. From the ancient times to the 19th century, debt relief refers to the domestic debts such as agricultural debts and freeing of debt slaves. However, in the late 20th century, it came to be primarily known as Third World debt. This began exploding with the Latin American debt crisis. The debt is of increased applicability to the individuals in the developed countries due to credit housing bubbles in the early 21st century.
The compensations of war
The 1953 Agreement on German External Debts, which considerably decreased German’s war re compensation, is a noteworthy example of international debt relief in the mid-20th century. The part of the explanations was that the German’s World War I compensations were deeply resented in Germany, accredited as a reason of World War II globally and thus debt relief helped out settlement and peace in Europe.
The debt problems of the less developed countries
Debt relief for deeply indebted and non-developed countries was the subject in the 1990s of a campaign by a wide combination of Christian organizations, NGOs and others under the poster of Jubilee 2000. This campaign engaging the revelations at the 1998 G8 meeting in Birmingham, was successful in pushing debt relief onto the schedule of international organizations and Western governments like the World Bank and the International Monetary Fund. The Heavily Indebted Poor Countries (HIPC) scheme was finally launched to offer organized debt relief for the poor countries and, at the same time, trying to make sure that the money is spent to reduce the rate of poverty.
The HIPC programme is subjected to conditionalities that are somewhat similar to the ones that are attached to World Bank loans and International Monetary Fund (IMF). They require structural alteration reforms consisting of the privatization of public utilities, like electricity and water. The countries must also preserve macroeconomic steadiness and execute a Poverty Reduction Strategy for at least a year in order to qualify for debt relief. Some countries have been forced to lessen the spending in educational and health sectors under the objective of reducing inflation.
The Multilateral Debt Relief Initiative (MDRI) is considered to be an extension of HIPC. The MDRI was agreed next to the G8’s Gleneagles conference in July 2005. It provides 100% cancellation of multilateral debts that are owed by HIPC countries to the World Bank, African Development Bank and IMF.
The disagreements on debt relief
The rivals of debt relief quarreled on the fact that it is a blank check to the governments, and thus fear that the savings will not reach the poor people in the countries infected by corruption. However, others fight that the countries will deal with further debts under the belief that these debts will be forgiven in the near future. They may use the money to increase the wealth and spending capability of the rich. Thus, many rich people will invest or spend this money in the rich countries. They quarrel on the fact that the money will be spent in particular aid projects in a better way that helps the poor people. They further fight that it would be unjust to the third-world countries that handled their credit successfully or did not fall into debt in the first place. It supports the third-world governments to overspend so as to get debt relief in the future. Others argue against the conditionalities that are attached to debt relief. These conditions of structural adjustment have their own history, particularly in Latin America, of expanding the gap between the rich and the poor and increasing fiscal dependence on the global North.
Personal debt relief
The origin
Debt relief existed in several old societies:
- Debt forgiveness is referred to in the Book of Leviticus where God councils Moses to pardon debts in some cases every Jubilee year at the end of Shmita. This is the last year of the seven year agricultural cycle or a 49-year cycle based on the explanation.
- Debt forgiveness was found in the Ancient Athens, where in the 6th century BCE, the lawmaker Solon organized a set of laws called seisachtheia, which canceled all the debts and retroactively abandoned the earlier debts that had caused slavery thereby freeing the debt slaves.
- The Muslim scripture, the Qur’an supports debt forgiveness that is not able to pay as an act of charity and reduction of sins for the creditor. So, if the debtor is in difficulty, grant him sufficient time till he is able to pay off.
The recent debt crisis
Personal debt is an increasingly big problem in many developed countries in the recent years because of credit bubbles. For example, it is approximated that the average US household has $19,000 in non-mortgage debt. With such huge debt burden, many individuals are finding difficulty to repay the outstanding debts and thus, require help.
You will find several companies that provide debt consolidation services. However, such services may not always be in the best interests of the person involved and thus, may require taking out a loan that is secured by the home of the person. The marketing materials are planned to influence the customers to take up the offer of the company rather than providing a personal solution to reduce debt problems. Where debt has become a major problem, it is best to shift to a self-governing consumer’s organization for suggestion before calling up the debt consolidation companies. This is because the consumer’s associations usually have good experience with such problems and so, may be able to give you suitable advice for debt relief.
Till some form of Chapter 7 bankruptcy debt relief remains within the US law, the credit card companies must concentrate and try to do as much as possible to help out their customers to repay debts with relatively traditional means. By putting bankruptcy at a side, it is in the best interest of the credit card companies that the debtors may get some motivation to make their debt payments and not simply skip the outstanding debts.
In the U.S. tax law, debt forgiven is considered as an income since it decreases a liability and enhances the net worth of the taxpayer. In the background of the bursting of the United States housing bubble, the Mortgage Forgiveness Debt Relief Act of 2007 presents that debt forgiven on a primary residence is not considered as an income, for the debts that are forgiven in the 3-year period 2007–2009. However, the Emergency Economic Stabilization Act of 2008 widened this by 3 years to the 6-year period 2007–2012.