What is debt cancellation?


Lenders with the appropriate authority may offer an optional debt cancellation agreement to their lending customer. In simple terms the agreement involves:

  1. charging a fee for the debt relief option
  2. amending its lending agreement to provide defined benefits when certain life events occur that typically cause financial trouble for people, and
  3. cancelling the debt or monthly payment obligation upon the certain life events occurring which may include losing a job, being hospitalized, serving our country thru a military deployment, suffering a disability or critical injury, having purchased merchandise that was subsequently stolen or damaged, and much more.

Unlike credit insurance, debt cancellation agreements are a 2-party relationship between the lender and the borrower. A debt cancellation agreement may do one or more of the following:

  • cancels the debt or monthly payments (thus the name debt cancellation)
  • defers payment on existing debt (typically referred to as debt deferment or debt suspension)