Debt Forgiveness for Disabled People: A Guide

Living with a disability can be challenging enough without the added stress of debt. Fortunately, there are options available for disabled individuals to seek debt forgiveness.

In the United States, the Fair Debt Collection Practices Act protects consumers from abusive debt collection practices, including those who are disabled.

For disabled individuals, debt forgiveness can be a lifesaver, allowing them to focus on their well-being rather than worrying about debt payments.

The National Foundation for Credit Counseling (NFCC) offers financial counseling and education to help disabled individuals manage their debt and create a plan for debt forgiveness.

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You can discharge federal student loans through Total and Permanent Disability (TPD) discharge.

Federal Direct Loan Program, Perkins Loans, and the Federal Family Education Loan (FFEL) Program are eligible for a TPD discharge.

Teacher Education Assistance for College and Higher Education (TEACH) grants, which require a service obligation, can also be discharged this way.

You'll have to complete an application to get a TPD discharge.

Take a look at this: What Is a Debt Consolidation Program

Federal student loans offer a Total and Permanent Disability (TPD) discharge for disabled borrowers who meet specific qualifications.

To qualify for a discharge, you can't have had the injury or illness when you signed up for the loan. If you had the disability when you got the loan, you might be able to cancel your debt if you can show a substantial deterioration of your condition.

The federal student loan program offers a TPD discharge for disabled people who meet specific qualifications. Federal Direct Loan Program, Perkins Loans, and the Federal Family Education Loan (FFEL) Program are eligible for a TPD discharge.

You'll have to complete an application to get a TPD discharge this way. The application process involves submitting documentation from a physician, who must certify your total and permanent disability on the proper form.

To find out more about the application process, contact your loan servicer. They can provide you with the necessary forms and information.

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Here's a breakdown of the types of federal student loans eligible for a TPD discharge:

If you're unsure about your eligibility or the application process, don't hesitate to reach out to your loan servicer for guidance.

Credit card forgiveness can be a challenge for anyone, but disabled individuals have some extra protection. Social Security disability benefits are exempt from garnishment for credit card debts.

Creditors can't access these funds directly, providing a layer of financial safety. This means you can breathe a little easier knowing your disability benefits are off-limits to creditors.

A creditor must file a lawsuit to garnish your social security income, but federal law often prohibits them from doing so. This lengthy legal battle usually doesn't justify the effort for the creditor.

To qualify for a TPD discharge, you'll have to show you can't do any "substantial gainful activity" because of a "medically determinable" physical or mental impairment. This impairment must be expected to result in death, have lasted for a continuous period of not less than 60 months, or be expected to last for a continuous period of not less than 60 months.

You'll need a doctor or licensed medical professional to certify that you meet the definition of totally and permanently disabled. This certification is crucial in determining your eligibility for a TPD discharge.

If you're already receiving disability benefits from the Social Security Administration (SSA) or the Department of Veterans Affairs (VA), you might be eligible for an automatic discharge. This can save you the hassle of applying and getting certified by a medical professional.

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Applying for debt forgiveness can be a straightforward process. If you haven't received an automatic discharge letter, you can apply directly to the Department of Education through an online system.

You'll need to submit one application for all of your federal student loans, and Nelnet, a loan servicer, assists the Department in administering the process.

You can also submit an application by mail or email, giving you options to choose from.

Notifying the Department that you plan on applying for a disability discharge can suspend collection activity on your loans for up to 120 days. This gives you time to complete and submit the discharge application without having to make payments.

After you submit your application, the Department will contact your loan holders and tell them to suspend collection activity on your loans for another 120 days.

However, this suspension doesn't apply to wage garnishments or Treasury offsets.

The IRS may consider forgiven debt as taxable income, but there are exceptions for disabled individuals.

Forgiven debt is typically reported on Form 1099-C, but if you're disabled, you may be exempt from paying taxes on it.

Certain tax credits, like the Earned Income Tax Credit (EITC), can be more accessible to disabled individuals due to their lower income.

For more insights, see: Forgiveness of Debt Income

Taxes can be a real headache, especially when it comes to student loans. The IRS generally treats the amount of a discharged loan as income to you, meaning you'll have to pay taxes on it unless you qualify for an exception or exclusion.

However, if you become permanently disabled, the forgiven amount is excluded from taxable income for federal purposes. This exclusion applies after December 31, 2017, but will only be available until December 31, 2025, unless Congress renews it.

The American Rescue Plan Act is a bit of a game-changer, though - it exempts student debt forgiveness from federal taxation until January 1, 2026.

A different take: Do You Have to Pay Taxes on Debt Forgiveness

Social Security disability benefits are commonly exempt from garnishment for credit card debts. This means creditors can't access these funds directly, providing a layer of financial safety for people with disabilities.

Creditors must file a lawsuit to garnish your social security income, but federal law often prohibits them from doing so.

A lengthy legal battle usually follows, and the associated costs don't justify the effort for the creditor.

The MI-LOAN Program provides for cancellation of the remaining outstanding balance on a loan due to a student's total and permanent disability. This is defined as the student's inability to work and earn money, or go to school, due to an injury or illness that is expected to continue indefinitely or result in death.

The student's condition must be certified on the proper MI-LOAN Program form by a physician of medicine or osteopathy, legally authorized to practice.

A Death Certificate or other document deemed acceptable by the MI-LOAN Program will also forgive the loan upon the student's death.

Here are the scenarios where loan forgiveness is applicable:

Discharging private student loans can be a bit tricky, but some lenders are willing to work with borrowers who become disabled. Some private lenders will agree to forgive student loan debt if a borrower becomes disabled.

To find out about cancellation options for private student loans, contact your loan servicer to determine if the lender has a disability cancellation policy. This is the best way to get specific information about your loan.

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Loan forgiveness is a lifesaver for those who qualify. You can have your remaining loan balance cancelled if you're deemed totally and permanently disabled, which means you're unable to work or attend school due to an injury or illness that's expected to last a lifetime.

A physician's certification is required to prove your disability, and it must be submitted to the MI-LOAN Program on the proper form. This applies not only to students but also to non-student borrowers and cosigners.

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If you're a cosigner or the borrower, and the student dies, the loan will be forgiven. You'll just need to submit a Death Certificate or an acceptable document to the MI-LOAN Program.

Here are some loan types that are eligible for a Total and Permanent Disability (TPD) discharge:

If you're dealing with private student loans, the rules are a bit different. Some private lenders may forgive your debt if you become disabled, but you'll need to contact your loan servicer to find out if they have a disability cancellation policy.

It's worth noting that if you had the disability when you got the loan, you might be able to cancel your debt if you can show a substantial deterioration of your condition.