Government Debt Relief - Is It An Option?

  • Government debt relief programs are limited, but options do exist.
  • HAFA and HAMP loan modification programs can provide government sponsored mortgage relief.
  • Also compare traditional debt relief options, like credit counseling, debt consolidation and debt resolution to deal with credit card debt.

Tips and Advice to Find Government Debt Relief and Grants

Does government debt relief exist, and if so, what exactly are your options? There are some misconceptions about what the government can actually do to provide debt relief. In short, the federal government does have assistance programs and grants, but there is no such thing as a straight-forward debt relief program issued by the government where your debts disappear magically.

Quick Tip Get rid of your credit card debt with a no-cost, no obligation analysis of your debt resolution options from a debt consolidation expert.

Government Debt Relief and Grants

Many advertisements and articles claim an abundance of federal grants exist to provide debt relief. They say you just have to know where to look. But have you ever noticed that they never tell you where to look? That is because these grants to help you pay off your debt do not exist. There are a variety of programs that assist low-income families to afford necessities, such as rent and certain utilities, but there are no grants that help pay your credit card debt. Beware of companies advertising such grants: these are usually scams that are trying to get you to pay for information that is publicly available and that won't help you solve your debt problems.

Student Loan Consolidation

Individuals or parents struggling to repay one or more federal student loans can find some relief in federal student loan consolidation. This program allows you to consolidate your loans into one that has a lower interest rate and one convenient monthly payment. However, this form of debt relief applies only to federal student loans that you took out. Any private student loans are not eligible for a federal student loan consolidation.

Mortgage Debt Relief

The one area where government assistance has recently become available is in the realm of mortgage debt and possible foreclosure. Due to the subprime mortgage meltdown, the U.S Department of Housing and Urban Development (HUD) now offers some new programs to assist homeowners struggling with their mortgages. (Editor’s Note: The new HARP 2.0 mortgage program is a lifeline the government is throwing to underwater borrowers. Read about the changes made to HARP 2.0 and how it can help you, if you owe more than your home is worth.)

Making Home Affordable Program (MHA)

In 2009, the Obama Administration created the Making Home Affordable (MHA) program. A 17-page document titled Modification Program Guidelines outlines the 2009 provisions for trial loan modifications. An eligibility MHA questionnaire helps homeowners determine if they may qualify. This program has two components: 1) mortgage refinancing through Home Affordable Refinance Program (HARP); and 2) mortgage modification through Home Affordable Modification Program (HAMP). There are provisions that also include homeowners with second mortgages (liens) or even third mortgages. HAMP Borrower FAQs and HAMP Factsheet answer basic questions on the program. The Making Home Affordable Program Web site provides eligibility information, how to request a modification, and additional facts.

Home Affordable Modification Program (HAMP)

The HAMP overview page describes succinctly the requirements that borrowers must meet to be eligible. In a nutshell, HAMP is designed to help homeowners and servicers avoid foreclosure by modifying the terms of the loan to make the mortgage payments affordable for the long-term.

The HAMP qualifying criteria include:

  1. Borrower is delinquent on their mortgage or faces imminent risk of default
  2. Property is occupied as borrower's primary residence
  3. Mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.

The HAMP overview page contains documents the borrower must complete to participate, including: Request for Modification and Affidavit, Hardship Affidavit, and IRS 4506T.

Home Affordable Foreclosure Alternatives (HAFA)

HAFA alternatives are available to all HAMP-eligible borrowers who:

  1. Do not qualify for a Trial Period Plan
  2. Do not successfully complete a Trial Period Plan
  3. Miss at least two consecutive payment during a HAMP modification; or
  4. Request a short sale or deed-in-lieu.

HAFA is complex with numerous guidelines set by the Treasury Dept. These new guidelines do not apply to loans by Fannie Mae, Freddie Mac, FHA or VA because these programs have their own short-sale programs that vary from HAFA.

HAFA provides incentives to mortgage lenders (servicers), seller, and other lien holders. There are deadlines that the mortgage lender and subsequent lien holder have to follow to provide timely progression on the sale of the property. HAFA simplifies and streamlines the short sale and deed in lieu process by providing a standard process flow, minimum performance timeframes, and standard documentation.

HAFA Details

A HAFA overview provides a description of the current guidelines plus has the latest documents borrowers need for the short sale or deed-in-lieu of foreclosure. A 45-page HAFA Supplemental Directive 09-09: Home Affordable Foreclosure Alternatives – Short Sale and Deed-in-Lieu of Foreclosure Update provides detailed information.

As mentioned, servicers need not participate in MHA, HAMP, or HAFA, though most do. However, the reality of the deadlines depends on the rigorousness of the servicer to implement the provisions.

The Treasury Dept. picked Freddie Mac to serve as the compliance agent and Fannie Mae as program administrator. The guidelines for payments is still under development by Fannie Mae as this was written.

Regarding credit reports, the servicer still may report to the consumer credit reporting agencies (i.e., Equifax, Experian, and TransUnion) the account as “full file” status. The 45-page document mentioned above contains further details on the credit reporting.

HAFA For Existing Borrowers (Sellers)

Homeowners selling their homes with a deed in lieu of foreclosure or short sale will benefit from a more streamlined process that includes deadlines the servicers must follow, and a $3,000 payment to cover relocation expenses. Also, borrowers must receive disclosures of costs and net proceeds the servicer requires. The HAFA eligibility requirements are the same as the original HAMP.

The bank or financial institution servicing the mortgage (called a “servicer”) must respond to a reasonable offer within 10 business days of receipt of all the required documents including the signed purchase offer and Request to Approve a Short-Sale (RASS). The servicer still has the option to reject the offer. However, this timeline will improve the chances of the borrower and purchaser to finalize the sale quickly.

Closing will occur in no less than 45 days, unless all parties agree to a shorter timeline. The most important provision for the borrower is that if the servicer participates in the HAFA program, and the first and second lien holders accept the incentives, then there can be no deficiency judgment. As with any other debt forgiveness, the servicer will issue any deficiency on IRS Form 1099-C and may be taxed as income. As mentioned previously, see the resource Mortgage Forgiveness Debt Relief Act to learn how to avoid taxes on forgiven mortgage debt.

HAFA For Purchasers (Buyers)

Read the supplement directive mentioned above for the program terms and conditions for purchaser obligations.

For example, the sale and purchase must be an “arms-length” transaction, which means that the buyer and seller must not be related by marriage, family, or commercial enterprise. The buyer also agrees not to sell the property for 90 days after closing. The 10-day time period is a great improvement because it has been common for purchasers to wait months for servicers to review offers.

Buying a Home

The FHA is the U.S. Federal Housing Administration which is a division of the Department of Housing and Urban Development (HUD). The FHA does not make loans directly, but guarantees loans that other lenders make that meet FHA guidelines. An FHA loan to purchase a home can help you buy a home with a down-payment as small as  3.5 % of the purchase price.

An FHA 203(k) loan allows borrowers to buy a "fixer-upper," financing the home purchase and also include the cost of repairs and improvements in their mortgage loan. The 203K also has the advantage of the low down-payment requirements of an FHA loan.

If you are interested in home in a rural area, you may qualify for a USDA loan. Both "guaranteed" and "direct" loans are available though the Farm Service Agency. See the resources Farm Loans and USDA Rural Housing Service Mortgage Insurance to learn more.


If the above debt solutions do not apply to you, there is no need to worry. Federal assistance is not the only way to reduce your debt. Educate yourself about all the debt relief options and improve your financial health today.

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Comments (30)

Dwpuchi C.
Freeport, NY  |  February 28, 2014
I will love to recive in spanish this information I understood but some time I kind express fluent english... thanks You are great and gave me hope again... thanks
Marvin M.
Houston, TX  |  February 25, 2013
I've received a few emails with information about a special "Obama refinance program" that could lower my interest rate. Do you know what they're referring to?
February 25, 2013
What you received was a marketing email that was stretching the truth. There are some different programs such as the HARP program and FHA and VA refinance program that could lower you interest rate, depending on your current loan's rate and your ability to meet eligibility requirements. However, there is no specific Obama refinance program. The closest thing to it is the #myrefi program, which is a proposal by the President to expand refinancing opportunities.

If you have not refinanced recently, rates are near historic lows and you should see if refinancing will save you money.
Bobby R.
Middletown, OH  |  May 29, 2012
We have an interest only loan, we owe more than what the home is worth. We asked our mortgage lender for a loan modification and they turn us down. What can we do we tried to refinance, lenders said we owe more than home is worth. Need help fast!!!
May 29, 2012
Bobby, your options depend on whether your loan is backed by Fannie Mae or Freddie Mac. If it is, look into the HARP mortgage program.

If not, there are not a lot of options. You can speak with a HUD approved housing counselor for free, at 888-995-4673. You can also keep following the news, as there is talk about expanding the HARP program to loans not backed by Fannie or Freddie.
Bobby R.
Middletown, OH  |  May 29, 2012
Will HAMP help with our problem with an interest only loan?
May 29, 2012
Bobby, the reason I suggested you call HOPE NOW is a HUD-approved housing counselor can speak to you about the HAMP program, discussing whether you qualify for a loan modification.
Phillip W.
Terrytown, LA  |  August 10, 2011
I have a question, I currently work in local law enforcement agency. So needless to say my pay is not the best. I recently got married, and my wife had over 100K in student loans, +60K was in private and the remaining in federal. So just in her student loans I am now shelling out and extra 1K a month to pay just on that. Now she got her loans before we even got married. Am I actually held liable for these loans or could they (Loan Company) come after me for late payments or non-payments because we are married? As of late, I was forced to pick up extra work just to make ends meet. My actual take home pay is 2,200.00 a month. My house note is now +1500.00 a(was 1,200.00) month due to the increase of insurance. I was wondering if there are any relief programs out there for student loans Private or Federal? I am trying my best to keep up with the debt like a responsible bill payer should, but I can't always bank that the extra work will always be available for me to work/earn. I am sure one of your question would be "did you look into consolidating your loans?" The answer to that is yes, according to my wife. she claims she did look into it but there was nothing out there that would help. Thanks to this current economy being in such bad shape. My wife is still unable to find a job in her field of study. So, If there is any insight you could provide it would be greatly appreciated.
August 11, 2011
Consult with a lawyer in your state to learn exactly what liability a spouse has, if any, for one spouse's pre-marital debt. In general, in common-law family-law states, spouses do not have liability for the other spouse's debts. In community property states, the answer to that question is much murkier.

Has your spouse looked into a deferment or forbearance?

You mentioned working in law enforcement. There are student loan cancellation programs available for people working in public service, but these programs are not transferable to the public servant's spouse.
Ry S.
Weare, NH  |  November 09, 2011
No one can go after you for students loans incurred by your wife prior to your marriage.
November 09, 2011
Not so fast. In some community property states, community assets can be pursued if a spouse becomes delinquent on a debt and the creditor receives a judgment. In California, for example, the separate assets of a judgment-creditor's spouse are fair game for liens.

It is rarely a good idea to make blanket statements about consumer legal rights and liabilities.
Angel B.
Houston, TX  |  June 13, 2011
I was unemployed for almost two years and my credit score went from around 750 to the low 500s...Is there a way that I can still apply for a FHA loan or some other program that will assist with home ownership? I would also like to know if I can contact the credit agencies to explain my circumstances and if this will help improve my credit. Thanks in advance :)
June 14, 2011
Explaining your situation will not convince the mathematical equations used by FICO, Plus Score, and VantageScore to increase your credit score. See the resources Bad Credit Ratings and Boost Credit Score to learn more.
Mai S.
Providence, RI  |  February 03, 2011
Hi, I need some advice and help I owe 2 payday loan companies for about 3 years now they are sill calling me harrassing me a work at home. I am working on one of the loans. but the other 2 is just making me go crazy, they had said if I didnt pay they would call the cops on me and take me to jail or take me to court and take my garnish wages from my check, Can they sue me?.. I am very scared they are very rude to me. I live in the state of Rhode Island can anyone please help me with some advies, the loan are under 500.
February 03, 2011
See the resource Payday Loan Collection Advice to learn more about your rights and liabilities for a payday loan debt. One fear you may put out of your mind are criminal charges. Failure to pay a debt you intended to repay is a matter for civil law, and not the police and district attorney.
Jim W.
Cape Coral, FL  |  January 08, 2011
I just recently come in to some extra money, Enough to pay off the 2 Credit Cards that I have and that been hanging over my head for the last several years both with less than Three Thousand Dollars on them and I was just getting ready to pay them off when my mom suggested to do some research on the internet because she said that she remembers reading something about possibly getting the balance on the Credit Card lowered if you tell the Creditor your willing to pay the balance off and tell them your in a hardship yourself or something,... In other words,... Is there a way to get the Balance of what you owe your Credit cards lowered if you tell them your willing to pay the whole balance off right now? I'm disabled going through a divorce and my only income is SSI, I'm trying to do a home loan Loan Modification on my house since Nov 15th and every 8 to 9 days the Bank keeps telling me they need something else, It's like the whole process stops until they receive the item that was missing and then 2 weeks later they'll need something else,... But anyway,.. Getting back on the subject, Is there a way to get the Creditor to lower the Balance on your Credit Card if you are willing to pay it off? Thank You. Jim
January 10, 2011
Jim, you can definitely attempt to negotiate with your creditors directly. If you you can demonstrate a financial hardship, your creditor may very well reduce the amount you owe in exchange for a lump-sum payment. Remember to get any settlement offer in writing, before you send payment. Lastly, if any part of your debt is forgiven, make sure to speak to a tax professional about the tax implications for forgiven debt.
Ellen W.
C/o Jersey City, NJ  |  April 20, 2012
I need to pay off a very high credit card debt. Are these debt relief offerings legitimate?
April 20, 2012
It is difficult to answer your question without knowing more about what you mean when you say, "these debt relief offerings" because some forms of debt relief are offered by concerned, hard-working, honest companies, and others by quick-buck artists. Three thoughts of advice:
  • Try the Debt Coach to get personalized advice on what form of debt relief you should consider for your credit card debt, and the costs of each option
  • Click on the debt relief partner page to get pre-screened debt relief quotes from partners.
  • Read the article How to Avoid Debt Relief Scams to learn the warning signs of a scam debt relief company.

Once you decide how to resolve your credit card debt, please return here to let us know what strategy you decided to take.

Simon O.
December 21, 2010
While grants may work, Americans in debt don't really have a serious Federal Government debt relief option, even though the President may have made people think that this was coming. Instead, we each have to take care of ourselves and get debt free and find our own debt relief solutions without expecting the government to bail us out!
Sam D.
Elgin, IL  |  December 07, 2010
Thanks for the government debt relief tips. I think that just need normal debt relief though. What would you recommend if I have about $40,000 in credit card bills that I cannot afford and am falling behind on? Thank you.
December 07, 2010
First, read the resource Debt Relief Options: Which is Right for You? to become a more educated consumer. Then visit the Debt Savings Center to get a no-cost quote from a pre-screened debt relief partner who has a program tailored to your needs.
Tanner J.
Duncan, OK  |  December 20, 2010
I read your comment and I have some advice for you. I am not an attorney but I own a company called {marketing removed} so I deal with credit card companies and lenders of all kinds every day. If you cannot afford your monthly payments, the first thing you should do is contact your credit card companies. They want to keep you as a customer because if you default, they have to hire a collection agency to get the money. The main reason they do not like to do this is because they will only receive on average 25% of what you currently owe. So if you have a $10,000 card that goes to a collection company, the most money the original credit card issuer will receive is $2,500. They do not tell you this but it is the truth. Also, depending on how long your debt has gone unpaid, the credit card companies could receive as little as 6 cents to the dollar. Yes, that is right. Now that $10,000 debt is collected by a collection agency and all they have to pay to the original lender is $60.00. The collection agencies will act like they bought your debt but that is not the truth. They are granted permission to pursue your debt and once they collect, they will pay the necessary percentage to the original company. This is kind of risky but it works if you are interested. Let your cards get turned over to the collection agencies. They will act like you have to pay right now or they are going to garnish your wages. This cannot happen, it is illegal for them to even say it. You have to be taken to court before a debt can ever be garnished from your paycheck. After your debts go the collection agencies, wait about 2 months by ignoring the calls or just telling them you do not have the money to pay them. Then start writing letters to the collector to negotiate a settlement. They will accept a settlement. I have never had a company refuse to take less than what was owed. They are making a fortune anyway. If you owe $10,000, I would suggest offering to pay them $3,600 over the course of 1 year (which would be $200 a month). IMPORTANT! Always make sure that in your settlement arrangement, you negotiate that once the debt is paid off, they will remove it from your report as if it was never there. They will do this because they could care less about your credit scores. They just want money. Anyway, after you send a settlement offer for around 35%, you will get a letter back saying that they will settle for 2 payments of around $4,000. This is what I generally receive. Do not respond after you get this. Wait till they get desperate and start calling you two to three times a day. Then answer the phone, and say the following words, "I am very knowledgeable about how much money a collection agency pays the original lender when they collect a debt. I am not able to pay that much money and I refuse to allow you to make more than $500 dollars from me for your services." This will get them wondering how much you know. Tell them that you know exactly how much they owe to the original lender and they will have to start being truthful if they ever want their money. Always tell them that you can file bankruptcy at any time and save a fortune so there is no reason for you to settle with them unless they give you a great deal. Then, offer them $4,000, but make them accept a two year term if you need to. If you can afford it, pay it as soon as possible. Anyway, if you need any advice, please call me. I offer free financial, credit and debt counseling and would be happy to coach you through this process. It is very hard to explain it while typing, but I could give you some great information over the phone free of charge. Hope this helped. Call if you need any more advice. - Tanner
Brad S.
Portola Valley, CA  |  December 20, 2010
That is really solid advice, if you cannot afford to pay and are willing to sacrifice your credit score to save on resolving your debts. Thumbs up for that tip!
Judy G.
Macomb, MI  |  May 16, 2011
Thank you for the heads up. Never expected to be in debt to anyone. After working for a company for 10 years and never being without a job, i find myself like so many others facing debt and have no income.I expect to start receiving social security in july and this will help me to set up a settlement plan.I don't want them to garnish my income I so desperately need.thank you so much for the information.
Diane O.
Oceanside, CA  |  May 17, 2011
Hey Tanner, i just read your comment on from December 20, 2010. Great advice! Whatdo you know about Payday advance companies? can the same or similar tactic be used on them as well? Thanks Diane
Dona D.
Richland, OK  |  July 11, 2011
Thank you for your credit card comments. I plan to use it. I lost my job a year ago due to a stroke. I tried unemployment but was denied since I was recovering from a stroke. I also tried disability but was denied. I am recovered enough to pursue a job (I've been seeking employment for over 9 months). I used my savings and tax refunds to survive and eventually that ran out. The credit card company has contacted me every day, that includes weekends and holidays, averaging 4-5 calls a day. They offered to assistant in lowering my payments but there was a hitch: I needed a job! The calls continued. I received a settlement notice and spoke to them in regards to not having the ability to pay and again letting them know I wanted to pay my debt and that I was actively seeking employment - the calls continue. I just received the notice they will turn me over to a collection agency and destroy my credit. I had not expected to be in this situation-who does. My pride is hurt in not being able to pay this debt. I would forgo food and necessities in order to make payments but the late fees and interest got so out of hand that It had become hopeless to continue. I have always taken care of debts. I raised 3 kids alone with a 4th at home. I did this without a college education. I'm accustomed to hard times and fighting for everything we have. But even I have limitations. I was feeling hopeless until I read your response. The job market is very poor. The interviews I get I am told there are 49 or more applicants for the one position. Very discouraging. Your comments gave me a ray of hope-something to ease my guilt and anquish over this debt. I am well aware my credit rating will be bad, but I truly believe it will be decades before one can recover the loss of their savings and begin to rebuild their credit even without credit debts. Again I thank you. dd- OKLAHOMA
Lamonica F.
Ameila, OH  |  August 14, 2011
I would be really interested in getting some advice from Tanner. My hours at work were just cut leaving $1000.00 shortage each month. I haven't defaulted on any of my loans, but with the cut I am only going to able to afford the minimums. I am afraid with just paying the minimums I will never get out of debt. Help
August 15, 2011
There are a limited number of options, but there are two that I suggest you examine closely.

If you have high interest rates, a credit counseling program may help you pay down your debts more effectively.

If you are more concerned about getting out of debt than your credit rating, speak with a reputable debt settlement provider.
Joanne G.
Sahuarita, AZ  |  August 29, 2011
I'm in a deep hole. We moved to Arizona 10 years ago and contraray to popular belief, the cost of living is much higher then back east. I was considering Debt Relief but I'm reluctant. Who do you trust not to get you into a harder spot? If the government itself doesn't offer programs, they should least monitor the programs out there and offer lists of reputable resources. I now have 28,000 in credit card debt. I make my payments on time every month but it's no way to live when you can't even take your kids to a movie or out to eat. Most of mine are from medical bills for my kids and car payments. I now also have a school loan for my daugter's schooling. At this point my choices are to pay off as much as I can with my retirement fund and retire with nothing oe work till I'm 80. The value of my house fell from 345,000 in 2006 to 180,000 in 2010. Should have sold in 2006.
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