Home loan debt forgiveness occurs when lenders cancel debt. While this is a rare occurrence, it has happened more frequently since the 2008 recession. The Mortgage Forgiveness Debt Relief Act offered homeowners in trouble after property values plummeted and many homes ended up in foreclosure. While this provided some relief, there may still be a large amount of homeowners who are under water in their home loans or at risk for foreclosure. Home loan debt forgiveness can help homeowners restructure mortgage loans or be relieved from part or all of their loans. Here’s what you need to know about home loan debt forgiveness.

What You Need to Know

  • What is Debt Forgiveness?
  • Results of Home Loan Debt Forgiveness
  • Alternatives to Home Loan Debt Forgiveness

What is Debt Forgiveness?

Debt forgiveness is when a lender forgives or cancels an owed debt or restructures the debt to make it more manageable. While rare, debt forgiveness can happen, although creditors don’t grant debt forgiveness lightly, especially for mortgage loans. In order to have a home loan debt forgiven, creditors need to show that they have insufficient income to make ongoing payments, as well as a lack of assets to sell off and use the money toward paying off their loans. Home loan debt forgiveness is not an easy process, and must be negotiated individually between creditors and debtors. Consumers must also be wary of scams that exploit creditors who need home loan debt forgiveness.


  • A lender cancels an owed debt.
  • Creditors must show an inability to pay their debts.
  • Home loan debt forgiveness must be carefully negotiated.

Results of Home Loan Debt Forgiveness

Home loan debt forgiveness is not a straightforward process, and there are important consequences for debtors to consider. if a creditor forgives a loan, it’s as if the creditor is giving the debtor money, at least according to the IRS. Because this counts as income, the debtor will owe taxes on that money. When qualifying for home loan debt forgiveness, the homeowner will need to fill out time-consuming paperwork and limiting or completely stopping payment on the debt. This process could lead to increasing interest charges, especially if the loan is not forgiven. There could also be costly fees in addition to interest charges, especially with companies that claim to be able to negotiate home loan debt forgiveness. Lastly, when creditors write off portions or all of debts, this is reported to major credit bureaus. Debtors can expect a significant impact on their credit histories.


  • Debtors may owe money to the IRS when debts are forgiven.
  • Debtors may have to deal with higher interest charges.
  • A negative future impact on credit histories.

Alternatives to Home Loan Debt Forgiveness

While home loan debt forgiveness may seem like the ideal approach, it is important for consumers to know that there are alternatives. Refinancing loans may be an option, taking advantage of lower interest rates to help make home loans more manageable without negatively impacting consumers’ credit histories. For those who have multiple creditors, it may be possible for consumers to consolidate debt to make it easier to pay. Another option for home loans is restructuring, which stretches home loan payments over longer periods of time and makes payments easier to manage. If it’s possible, debtors may consider downsizing their homes and selling off all available assets in order to pay off their debts as much as possible. Lastly, while people think of bankruptcy as a last resort, it might provide much-needed relief from debt.


  • Consider refinancing existing home loans.
  • Debt consolidation can make payments more manageable.
  • Chapter 7 bankruptcy might be beneficial.