Debt Cancellation

Cancellation of debt designates the forgiveness of debt by lenders. Debt cancellation may be granted to individuals, enterprises or even countries under given circumstances. Debt cancellation is also known as debt relief. It simplifies ones financial life. For example, credit card debt cancellation.

Is Debt Cancellation taxable?
When a borrower takes some money from a lender or creditor, the borrower has an obligation to return the money to the lender. this borrowed money is not taxable.

But when lender forgives your money, you have to report this money to income tax department as this money is considered as income.

But the income gained due to debt cancellation is not always taxable. The situations where it is not taxable are

Bankruptcy – The debt has been cancelled due to bankruptcy.
Insolvency – If the debt has been cancelled due to your insolvency, a portion or whole of the cancelled debt might be tax free depending upon the circumstances.
If you are a farmer and have incurred some farming debts, then you might qualify for this rebate, if you meet the certain requirements for this. It's a very complicated issue and you will need the help of tax professional in this regard.
If you have taken Non-recourse loan, you may avail this opportunity on being default, but that totally depends upon the circumstances

You can cancel your credit card debt. There are certain policies for debt cancellation. If you have excessive credit cards, then it better to cancel some of your unused accounts. Credit card companies allow you to cancel your credit card debt in certain situations like death of your spouse, loss of a job or in certain disability.

There are various mortgagee companies who are offering debt cancellation. So you should be meticulous in what circumstances your debt can be cancelled.

You can also qualify for debt cancellation as an individual. For example, if you have taken a student loan and you are totally unable to fulfill your obligations due to financial troubles, you can opt for debt cancellations.
If the individual who has taken the student loan dies, the debt will be cancelled. This will not be the individual's spouse obligation to make the payment. But on the contrary, if the parents have taken a loan for his kid, it will be their responsibility to make the payment, even if the spouse expires.

Debt cancellation is a major issue when it takes the considerations of countries. There are so many poor or undeveloped countries who take loans for the education, medical and for the development the infra structure. Sometimes, they require loans for their economic stability. But they are not able to pay the day by day increasing debt. In that situation, debt lending countries cancel the debt giving them a sigh of relief.