Credit Card Debt Forgiveness: Is this for real?

Credit Card Debt Forgiveness: Is This for real?

Credit card debt is like a prison to millions of Americans. Is there a way to escape without paying up? Do credit card companies actually forgive and forget debt?


But before you get too excited, realize that the Get Out of Jail Free card is only good in very specific circumstances. Credit card forgiveness applies only if the debt was due to credit card fraud or the card holder dies or there is a divorce or the debt is so old that statute of limitations has run out on it.

Debt settlement can also be considered a form of debt forgiveness, though that comes with such a downside you might never repeat the old saying, “To overspend is human; to forgive divine.”

Actually, the 18th Century poet Alexander Pope wrote “To err is Human; to Forgive, Divine.” But that was about 250 years before the invention of the credit card, and creditors are rarely in a divine mood.

Here is a list of circumstances and programs which can result in credit card debt forgiveness:

Debt after Divorce

You can be held liable for your spouse’s credit card debt, but only under certain conditions. You could be on the hook if you were a joint cardholder or a co-signer for the card.

You’re also stuck if you were assigned the debt in a divorce proceeding. Most states use common law rules in such instances, meaning you are only liable if the debt is in your name. If the credit card was in both names, you could be liable.

Nine states go by community property rules.  You are on the hook if you co-signed or had a joint account.

But on top of that, the bills run up by your spouse during your marriage are deemed community debt. In general, both spouses are equally liable regardless of whose name is on the credit card.

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in one and your marriage is on the rocks and your spouse is a spendaholic, you might consider moving.

Forgiven Debt after Death

Survivors are not liable for the credit card bills of a deceased family member, with the usual caveats: If you held a joint account with the deceased or co-signed for the card, you are responsible for the debt.

Otherwise, whatever debt is owed, will come out of the estate before it gets distributed to survivors. That means your inheritance could be trimmed a bit, but they can’t go after you.

Credit Card Debt Acquired by Children

Children aren’t usually held responsible for credit card debt for a simple reason – children are not supposed to have credit cards.

Federal law requires a person to be at least 18 to have a credit card. That age is even higher in certain states.

There are few exceptions, such as if a minor marries or joins the military or is emancipated from parental dependence by court order. Otherwise, they are considered minors and are not allowed to enter into a credit card contract.

That doesn’t mean they won’t do it, of course. Minors have been known to lie in order to obtain credit cards. That is considered fraud, but credit card companies rarely seek damages in court. There are consequences, however. Unpaid debt can show up on credit reports and affect minor’s credit score well into adulthood.

Unauthorized Debt

If your credit card is stolen or someone uses your card without permission, you are legally protected from having to pay most of the fraudulent charges.

It is important to promptly report the theft of a card, however. Your liability is limited to $50 if you report it within two business days.

If you wait between two and 60 days, your liability can be up to $500. If you wait more than six months, you could be held responsible for all the purchases charged to the account.

Old Debt

Can you just run out the clock? The answer is yes and no.

If you repeatedly fail to make payments, the credit card company is likely to give up trying to collect it and turn it over to a debt collection agency.

The company will charge off that debt, but that doesn’t mean your obligation has ended. The debt collection agency will hound you and might file a lawsuit. If it wins the case in court, you could have your wages garnished.

There are statutes of limitations on debt, and they vary from state to state. In most states, it’s between four and six years. The obligation becomes time-barred when it hits that date. If a creditor sues you after the statute of limitations has run out, you can get the case dismissed.

That doesn’t mean that the debt magically disappears. You’ll still owe it and the only way to make it go away for good is to pay it off or file for bankruptcy, which will wreck whatever’s left of you credit score.

So yes, old debt credit card debt can essentially be forgiven. But one way or another, it’s going to stick around.

Debt Settlement: Partial Debt Forgiveness

If things deteriorate to where you are considering bankruptcy, you might consider debt settlement. It’s a program offered by for-profit companies in which the company negotiates with your creditors to pay off your debt in one settlement.

The lump sum is less than the amount you owe. The debt settlement company requires you to make monthly payments to them instead of to your creditors. Those payments are put in an escrow-like account until you accumulate enough money to make a settlement offer to your creditors.

It sounds like a decent option, but beware, there are some serious downsides. For example, whatever portion of your debt is forgiven must be reported as income to the IRS and added to your taxable income.

There are high fees on debt settlement, and your credit rating will take a beating since creditors don’t typically negotiate with debt-settlement companies unless you are three months late on your payments. Some creditors won’t negotiate with them at all.

The debt settlement industry is also rife with scams and consumer complaints. Less than 10% of clients complete their programs, according a report from the Center for Responsible Lending.

If you find yourself in credit card prison, a better option might be a debt management program. A nonprofit company works with credit card companies and other creditors to lower your interest rates and monthly payments.

You make one monthly payment to the debt management company, which disburses the money to your creditors in agreed upon amounts. But you remain current on your payments, which spares your credit score the havoc wrought by debt settlement.

Certified credit counselors also set up a budget and long-term program to get you out of debt for good.

It’s not the total forgiveness of credit card bills that consumers dream of, but getting rid of debt will leave you feeling divine.


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