Debt forgiveness act is a term used by analysts to describe the changes in the US government policies to correct the financial crisis faced by the markets. Over 90 percent of the revolving debt in the US market is credit card debt, with foreclosure on properties and bankruptcy filing at an all time high. This alarming rise in consumer debts warranted action from the administration.
The government responded to the debt situation by enacting laws that increased government spending and extended tax credits. The American Recovery and Reinvestment Act of 2009 pumped in 787 billion dollars in to the US economy in the form of government grants, contracts, entitlements, and tax credits. The government also passed a couple of other laws to specifically target the home mortgage and credit card sectors.
September 25, 2007 saw the introduction of the Mortgage Forgiveness Debt Relief Act by the US Congress. Homeowners who had all or a portion of their debt forgiven by the lender had to pay tax on that amount as the government considered it as an income. Under this act, the government will no longer levy tax on this amount. The act is only applicable on the primary residence and rental properties will not be included for tax debt forgiveness under this act.
This act allows up to 2 million dollars of debt per year to be excluded from income tax. For better understanding, if you borrow 4 million dollars and the lender forgives 2 million dollars of your home mortgage debt, the government will not levy income tax, but if the amount is more than 2 million dollars you are liable for taxation. For eligibility details contact your tax adviser or visit the Internal Revenue Services (IRS) website.
The Credit Card Reform Act of 2009 made considerable changes to the way credit card companies did business. The act restricts card companies from arbitrarily changing interest rates without notifying the customers at least 45 days in advance. The act also put curbs on unfair business practices of card companies like double cycle billing and ambiguous use of terms like 'prime rate' and 'fixed rate' of interest.
The credit card debt forgiveness act also stipulates that the due date for payments should be fixed every month and if it falls on a weekend or bank holiday it be pushed to the next business day. All these reforms under the credit card debt forgiveness program will help consumers deal with their debts.
The Health Care and Education Reconciliation Act of 2010 deals with the issue of student loan debt forgiveness. Statistics show that almost 15 percent of an individuals discretionary income goes towards student loan repayment. Under the new act this will go down to almost 10 percent and give much-needed debt relief to people dealing with education loans.
This new act also states that individuals taking study loans after 2014 and paying their installments on time are eligible for loan forgiveness after 20 years, earlier the time set was 25 years. For students who take up careers in teaching, medicine, law and social work the eligibility for debt forgiveness is 10 years of timely payment of installments. For details of this student loan relief program, you can visit the National Student Loan Data System website.
These reforms coupled with the government spending to create new jobs have been referred to as the debt forgiveness act. The recent economic recession has prompted the government to take these measures to avoid the repeat of the great depression of the early 1930s.