What is a Debt Forgiveness Letter?

A Debt Forgiveness Letter is a request letter asking for forgiveness from your creditor because you cannot pay the debt any longer. A creditor forgives some or all of the outstanding balance you owe. A debt forgiveness letter has to be your last resort for asking for forgiveness to settle your financial difficulties.

Moreover, this is quite appealing to handle your finances, but there are ends that you might need to consider. It does not mean that you are free from your debt when you ask for debt forgiveness as your last option. Yet, there are certain stipulations in this process, such as hard-to-follow rules, unexpected tax bills, and harm to your credit scores.

How to fill out a Debt Forgiveness Letter?

RECIPIENT’S NAME

Enter the receiver’s full name of this letter.

ADDRESS

Enter the address of the receiver starting with street number and street name.

CITY, STATE, ZIP

Enter the city, state, and zip code.

DATE

Enter the current date upon writing this letter.

SALUTATION

Enter the name of the recipient.

BODY OF THE LETTER

Enter the amount of debt and the reason for owing a debt of the debtor.

YOUR DEBT HAS BEEN FORGIVEN IN-FULL

The creditor gives his or her approval for debt forgiveness or debt relief consideration to the debtor. The consumer must also agree upon the condition of this forgiveness letter that he or she will be receiving letters in the future for collecting a debt.

SIGNATURE

The creditor must sign this letter as an acknowledgment of sending this letter to the receiver.

Frequently Asked Questions About a Debt Forgiveness Letter

What is the purpose of writing a Debt Forgiveness Letter?

As much as you want to pay your debt to your creditor as originally planned, some unexpected circumstances may affect your finances including:

Loss of income
Loss of spouse’s income
Failure in business
Family medical bills
Divorce or death in the family
Work Relocation
Military duty
Being jailed
Severe property damage from a natural disaster, such as storms and hurricanes

These reasons do not give the debtor an exception to pay the debt. However, it still depends on the creditor to consider an individual for debt forgiveness. The main intention of the letter is to convince the creditor that the debtor is going through financial difficulties.

What are the common debt forgiveness options?

It is vital to know the common debt forgiveness options and the methods to make the debts manageable and understand the potential consequences.

Student Loan Forgiveness

A student loan forgiveness may depend on the type of job, income, and amount of debt. Programs that forgive, repay, or cancel education debt exist. This plan requires certain qualified borrowers who work in the public service or specific professions such as teachers or in-demand health care aides in low-income or remote areas.

It is not necessary to teach or work as a public service for you to get assistance in paying off your student load. Some borrowers are considered to get forgiveness if they have participated in certain volunteer programs or those who serve in the military.

Credit Card Debt Forgiveness

Issuers of credit cards are capable of forgiving balances as part of the debt settlement agreement. If the borrower is on the verge of bankruptcy, the issuer can make an arrangement for collecting some money as partial repayment than nothing.

The forgiven debt will be reported to the IRS and added to the borrower’s taxable income. However, the borrower’s credit score receives damages and they must have to monitor their current credit score standing. It would break another record of the borrower’s credit score if the issuer takes legal actions for such reasons.

Mortgage Debt Forgiveness

The federal government generally offers mortgage debt forgiveness. FHA homeowners may be qualified for several programs that prevent foreclosure or other assistance. The Home Affordable Modification Program is one of the programs that may reduce the monthly payments and a great portion of the total loan balance.

The Department of Housing and Urban Development started also offers several mortgage debt reduction programs. On the other hand, the bad side of mortgage debt forgiveness is losing your home and inflicting damages on your credit score.

Tax Debt Forgiveness

An individual can claim a tax debt forgiveness when an offer in compromise has been arranged. A tax bill will not be charged for the forgiven debt. The IRS accepts offers in compromise when a borrower or agency has nothing left or other ways to repay the money owed in a reasonable period. Moreover, IRS can hold on to the individual’s refund, take a portion of salary, put a lien on the bank account, seize and sell assets or property, and revoke a passport.

What happens after a Debt Forgiveness Letter?

The creditor has the option to forgive your debt or not, depending on your circumstances. Debt forgiveness will also depend on the type of debt you owe. In general, the creditor may grant you any of the following:

Debt forgiveness for less than the full balance owed.
Full forgiveness of the debt.

How do I write a debt forgiveness letter?

A debt forgiveness letter is a written request to the creditor asking them to forgive the remaining debt of a former debtor. The letters are often sent by consumers who have already paid some or most of what they owe but still feel like they should apologize for falling behind on their payments and ask that any future legal action be stopped since it is usually only after several missed monthly payments that the credit card company or mortgage holder will file a lawsuit to force repayment. To write a debt forgiveness letter, you must follow these steps:

Step 1: Identify the Creditors

You should write your forgiveness letter to each individual creditor to who you owe money. The creditor will be listed on any documents or letters they sent you about your account (or check out their website). You can easily find out if a company is still pursuing legal action by doing an online search of your name and the company's name.

Step 2: Figure Out Why the Debt is Unpaid

Debts can go unpaid for various reasons such as an accident, loss of a job, hospitalization, or even death. If you're writing your letter to clear up mistaken information that was reported on your credit report because of identity theft, write a separate letter to each credit reporting agency explaining what happened.

Step 3: State Your Intentions

Apologize for falling behind on your payments and let the creditor know your intention is to pay them back but you must request that any future legal action be stopped so you can focus on paying off the debt. Let them know that you will be sending them money in installments (provide an estimate of how much you can pay each month).

Step 4: End the Letter on a Positive Note

Thank them for their past business and assure them of your high regard. Then close the letter by thanking them again for their patience. Make sure to keep a copy of the letter for your records.

Do Debt Forgiveness Letters Work?

The short answer is: sometimes. The vast majority of debt forgiveness letters go unanswered and unacknowledged, but if the debtor has been making the best effort possible to keep up with payments, it can't hurt to try this option before spending more money on legal fees. Furthermore, if the debtor is truly insolvent, it might be worth filing for bankruptcy, which automatically stops any collection attempts or lawsuits against them.

If the debtor has gone through a tough financial situation, they are more likely to be granted forgiveness in order to help them get back on their feet financially.

It's important to note that debt forgiveness letters aren't legally binding or enforceable, so they only work if the creditor decides to actually forgive the debt. Furthermore, these letters can take months to have an effect.

What should be included in a debt forgiveness letter?

A debt forgiveness letter should have the fact that you are requesting the cancellation of the existing debt enclosed with your letter. You should also include in your letter why you can't pay it now, but that if they were to give you more time then you would be able to do so. It is important not to make any empty promises as this is a legal document and anything false can be used against you in court if they decide to take legal action.

In general, here are some instructions on how to write a debt forgiveness letter:

State who you are and who you owe in the letter.
Explain your current financial situation and why you can't pay now. If it is a temporary problem, state when you expect to be able to repay it in full as well as what steps you will take to ensure this happens (such as getting a second job).
Outline how much you owe and whether interest is charged on the debt. If it is, state when this will be paid off if your request is accepted. Express any regret for not being able to pay the debt in full right now, but emphasize that your situation will change soon or has already changed.
If you can pay the interest each month, state this and how much it is (the creditor may agree to waive your interest charges). If you cannot afford even to pay back the principal, stress that you will take steps to come up with the money as soon as possible, such as getting another job or selling something.
Explain that you are writing to request a debt forgiveness letter and include the date on which you expect payment to be made. If your creditor agrees, ask them to send you a written confirmation of this by return so that you have a record of the agreement. Keep a copy of the letter for yourself as well as requesting that the creditor confirms your arrangement in writing.
Enclose any documents, such as bank statements or letters relating to other debts you may have, which would help support your request (with copies of these). Sign and date the letter.

You must make it clear to your creditors that this is a formal debt relief program and that you will not be taking part in any further loan programs which will leave you even more indebted.

Remember that the debt forgiveness letter is a legal document and what you write can have major consequences, so make sure to think carefully before putting pen to paper (or fingers to keyboard). If your creditors agree not to press for repayment of your debts, they will normally include a document confirming this with the letter which you can keep as evidence of your arrangement. If they refuse to be lenient, it might not be worth persisting as this will only leave you open to greater problems further down the line. In addition, if they do take legal action against you then any letters you have received from them might be admissible as evidence.

You should bear these points in mind when writing a debt forgiveness letter. The more information you provide, the better your creditors will understand why you cannot meet your payments and the easier it will be for them to make a decision.

What are some valid reasons to receive a debt forgiveness letter?

Some of the valid reasons you may receive a debt forgiveness letter from your creditor include:

You negotiate an agreement with your creditor in person, over the phone, or through email.
A letter of "remission" has been sent to you by the creditor before the date of payment due. Debt forgiveness is possible only when there are confirmed written instructions from the creditor that grants it. This can be done by sending a notice via mail, fax, or email.
Your creditor sends a letter confirming debt forgiveness after you have sent them a payment that is below the minimum amount due for that month. In this case, your creditor may send you a letter confirming debt forgiveness as part of their terms and conditions. The creditor will waive an outstanding balance owed to them after your regular payment is made.
Your creditor forgives debt because of death or permanent disability. That is, the individual who signed the credit agreement is unable to pay for their loan due to serious injury or illness. The creditor may send you a letter confirming debt forgiveness as part of their terms and conditions. You can also request your creditor for written confirmation by sending a letter via mail, fax, or email.
You are in the process of bankruptcies proceedings when your creditor decides to waive all or part of your outstanding balance due. You can request written confirmation by sending a letter via mail, fax, or email.
There are ongoing negotiations between you and your creditor, but they have not opted to send a written notice of debt forgiveness.

A creditor may sometimes decide to grant partial or full debt forgiveness without being asked by the debtor. However, this is entirely up to the discretion of the individual company, so it is recommended that you request a letter confirming that your balance has been waived or reduced. Moreover, the creditor may have the option to deny debt forgiveness if they think you still have a strong chance of paying off your credit in full within a specified period.

You can often get validation that your creditor has forgiven or reduced your debt by sending a letter via mail, fax, or email. However, it is advisable to seek legal advice from an attorney before doing this. This is because the creditor may not permit you to borrow from them again after you've requested a letter of debt forgiveness.

Is a debt forgiveness letter valid?

A debt forgiveness letter is a valid document when it comes to showing that someone is absolved from debt. It serves as proof that you no longer owe someone money; in most cases, this would be the collection agency.

Since there are laws regarding what agencies can and cannot do to consumers who are having problems paying their bills, it is important to note that even if you've received one of these letters, the creditor still might not be required to back off. If they think you might still have assets or be able to pay something towards what you owe at a later date (like when your next payday comes around), they may continue pursuing you until they get a payment. In some states, creditors have as many as 20 years to sue debtors for unpaid monetary obligations, so know your state's policies before trying this tactic.

In order for this debt forgiveness letter to be valid, it should include the creditor's name and address, your full name and address, along with the account number if you have it. The letter should also state that payment is no longer required by you and explain why this is so. For instance: "I am no longer responsible for any part of my debt because I filed Chapter 7 bankruptcy," or "As per our agreement in writing on (date), I am discharging this debt." It's a good idea to get a phone confirmation from the collection agency that they received this letter before you assume that your problem has been solved.

If you send a letter and the company continues to contact you, then they are in violation of the law, but this doesn't always mean that the harassment will stop immediately. This is why it's important to keep a record of what all has transpired between you and the collection agency. If they fail to abide by your debt forgiveness letter (which only works when it comes from collections agencies or credit card companies), then there are other avenues you can pursue like filing a complaint with your state Attorney General, filing a complaint with the Federal Trade Commission for unfair business practices, filing a report on them with the Consumer Financial Protection Bureau, or even contacting an attorney if nothing else pans out.

Can I ask for debt forgiveness?

Yes, you can ask for debt forgiveness from your creditor to some extent. When you send a debt forgiveness letter, your creditor has the final to forgive your debt or not. It will depend on your credit quality and how it is affecting you. There are companies that give bad advice to people about how to get rid of their debt by advising them to write a letter of forgiveness. However, do not fall for this because you can't just forgive your loan debts if you have one with some creditor.

If you have an education stage but you are unemployed or underemployed then the best thing would be for you to contact your student loan creditor and ask them about the repayment plans initiated by government agencies where they lower down the monthly installment for up to three years.

If someone has taken out a personal loan from his bank so he can pay for his wedding or buy a car then sending the letter of forgiveness to that bank will not be advised because what he should do is just speak with his loan officer about repayment plans.

If you are thinking about writing a debt forgiveness letter to your creditor, think again because it may backfire on you by increasing interest rates and charges on your credit cards or other loans. The other thing would be putting negative remarks on your credit report, which will make it difficult for you to get an apartment lease in the future.

You should know when you can ask for debt forgiveness from creditors. Some instances when dealing with a situation like this; if someone is about to die due to cancer or another fatal then sometimes creditors look into these matters to see if they can provide some relief.

If you are in the military, then there are provisions for the debts to be forgiven by your creditors but it is necessary that you contact them first because most of these companies will not know about this so it is better to get in touch with them.

When someone is unemployed for a long time and he has no source of income, then he can ask for debt forgiveness from creditors where they set up a payment plan that will assist him in making payments or even forgive his loan completely. You should remember that it is best when you go into some kind of repayment plan instead of just asking your creditor to 'forgive' your loan because chances are they can also sue you which would result in legal fees and put negative remarks on your credit report.

You should also know what the definition of debt forgiveness is, which means that if you owe someone something then it can be canceled for any reason like in cases where you are not able to pay back the loan or when you die. The other thing would be bankruptcy because this will result in all outstanding debts being forgiven by creditors also known as 'discharged'. You can claim bankruptcy if your liabilities outweigh assets or don't take your assets away through foreclosure or repossession. The easiest way to get out of debt is by filing for personal bankruptcy which gives you chance to start over again after paying off secured creditors.

What is a loan forgiveness letter?

A loan forgiveness letter is a document that provides an avenue for borrowers to qualify for loan forgiveness in the United States. It serves as a legal document to inform the creditor that the debtor is seeking loan forgiveness. It also serves as a legal instrument to protect the borrower in case of an accident or other wrongful incident, where they need financial assistance.

The borrower will normally provide certain information, such as the name of the creditor, legal address for submission of payments, reason for seeking loan forgiveness, and other important details about their account. If you are sending this letter on behalf of someone else because you have been authorized by them to do so then ensure that you clearly state this at the beginning of your document.

What is a goodwill letter to creditors?

A goodwill letter to creditors is a document that is written by a debtor who is unable to repay their debts in full. It is typically used as an attempt to negotiate the size of the debt or propose repayment terms that are more favorable than those originally expected. A letter of this nature is most commonly sent prior to bankruptcy proceedings being initiated.

Goodwill letters can be useful when you have expenses that are higher than your income, but they will need to be presented at court with full financial information and repayment proposals if they are submitted after applying for bankruptcy. Moreover, these letters may result in an increase to your credit score, if they are received and acted upon favorably by the creditor.

There is no law that specifically regulates goodwill letters; however, they should be sent via registered mail and include the following:

A statement of what you can afford (or what you propose) to pay each month on your debts. The more you offer to pay, the more likely it will be received well even if it's less than 50% of the total debt due. Bear in mind that if court action has already been taken and a judgment issued against you, repaying part or all of this judgment may not result in a reduction of your total liability.
Details about your monthly income and expenses including any other debt obligations you have. If you are currently employed, provide your employment contract or pay stub to help support your income claim. It should also list all of the debts owed to other creditors and how much is outstanding on each account.
A copy of all statements for all credit accounts that are not included in the bankruptcy action, including credit card transactions for two months prior to when you file proceedings.
If possible, an explanation about why you cannot afford to repay the entire debt within 60 days (for example: if you lost your job; if there were unexpected medical bills; etc.)
Provide a contact telephone number and encourage them to get in touch with any questions or clarification they may require before they respond. Ensure that there is no mention of bankruptcy proceedings or insolvency in the letter as this may undermine your offer to negotiate.

For each creditor, attach a copy of any relevant documentation such as a credit agreement, statement of claim issued by the court and/or judgment issued against you.

You should keep copies of all letters sent and replies received — these can help support your position if future disputes with creditors arise. If you propose an alternative repayment schedule that is more than three months old, it is best to update this for consideration by your creditors.

Related Articles:

Fillable Form Debt Forgiveness Letter