When people have trouble managing their debt, some may hear the term “debt forgiveness” and think perhaps a credit card company will erase their balance if they make a sympathetic plea or present compelling evidence that they’re unable to pay. Most creditors will not simply forgive your debt in this way. Ultimately, credit card debt forgiveness is a highly rare, if not impossible, condition. However, creditors may work with you on paying the debt over time or even offer to settle the balance.

How a Creditor Can Dispose of Your Debt

When you have repeatedly failed to make payments on a debt, your creditor may eventually decide that they no longer want to try to collect it themselves. The creditor may charge off the debt, but that decision does not affect your obligation to repay the amount you borrowed.

When this happens, your creditor may choose to work with a collections agency to try and collect the debt. In other cases, your creditor or the collection agency may go so far as to file a lawsuit against you in an effort to collect the debt. If the creditor wins its lawsuit against you, you will have a judgment against you and may even have your wages garnished in some states. Before any of this happens, you can seek the assistance of a non-profit credit counselor.

How Debt Settlement Can Work

In some cases, a creditor may choose to receive just a portion of your all debt at once, rather than continue to make an effort to collect all of it or sell it. When a creditor reaches this kind of agreement, it’s called a settlement. And while a creditor may be willing to stop collections on a portion of your debt as part of a settlement, in some circumstances, it may have to report that settled debt to the IRS as cancelled debt.

The Federal Trade Commission offers consumer information about the risks and consequences of paying a for-profit debt settlement company, as well as how to avoid debt settlement scams.

Other Types of Debt Cancellation

There are a few other limited times where debt can be cancelled by a creditor. For example, when an individual declares bankruptcy, the court may discharge certain types of debts while restructuring others and preserving assets. Debtors should consult a bankruptcy attorney if they feel they need to investigate this option.

Bottom Line

There is no simple, easy way to get a creditor to cancel a debt, but there are options available when you can’t repay a credit card balance or loan. By talking to your creditor, you can often find the best solution for your needs. By reaching out to them first, when you start to feel financially pinched, you may be able to work out a payment plan that will help you pay down your debt.

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