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Can the Government Forgive Credit Card Debt?
by
JG Wentworth
•
November 20, 2025
•
10 min
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.
When Americans struggle under the weight of credit card debt—which collectively exceeds $1 trillion nationwide—many wonder whether the government might step in to provide relief, similar to discussions around student loan forgiveness. The short answer is clear: the federal government cannot and does not forgive credit card debt. Unlike federal student loans, which are owned by the government and therefore within its power to forgive, credit card debt is private debt owned by banks and financial institutions, placing it entirely outside the government’s authority to cancel.
Understanding this fundamental distinction is crucial for anyone seeking debt relief, as it shapes the realistic options available and helps separate fact from fiction in a landscape often clouded by misleading claims and outright scams.
Why the government cannot forgive credit card debt
The key to understanding why the government cannot forgive credit card debt lies in who actually owns that debt.
- When you borrow money through a credit card, you’re entering into a private contract with a financial institution—whether that’s a major bank like Chase or Bank of America, a credit union, or another private lender. The government is not a party to this agreement, does not own the debt, and therefore has no legal authority to simply cancel it.
- This stands in stark contrast to federal student loans, where the S. Department of Education is the actual creditor. Because the government owns these loans, the executive branch has certain powers (though legally contested) to forgive them under specific circumstances. Private student loans, notably, cannot be forgiven by the government for the same reason credit card debt cannot—they’re owned by private entities.
- The constitutional and legal framework of the United States protects private contracts and property rights. If the government were to unilaterally cancel debts owed to private companies without compensation, it would likely constitute an unconstitutional “taking” of private property under the Fifth Amendment. Credit card companies have a legal right to collect debts owed to them, and the government cannot arbitrarily eliminate those rights.
- Furthermore, credit card debt is unsecured debt, meaning it’s not backed by collateral like a house or car. It’s based entirely on the contractual promise to repay. This private contractual nature places it firmly in the realm of civil law between private parties, not government policy.
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What the government can do regarding credit card debt
While the government cannot forgive credit card debt, it does play several important regulatory and protective roles that affect how that debt is managed and collected:
- Consumer protection regulations: The federal government, through agencies like the Consumer Financial Protection Bureau (CFPB), enforces laws that protect consumers from predatory lending practices, unfair billing, and abusive collection tactics. The Fair Credit Billing Act, Truth in Lending Act, and Fair Debt Collection Practices Act all provide important protections for credit card holders.
- Bankruptcy law: Perhaps the government’s most significant role in credit card debt relief comes through the federal bankruptcy system. Congress has established bankruptcy laws that allow individuals to discharge certain debts, including credit card debt, under Chapter 7 bankruptcy, or restructure them under Chapter 13. This is a legal process overseen by federal courts that can effectively eliminate credit card debt, though it comes with serious long-term consequences for credit scores and financial standing.
- Tax treatment of forgiven debt: The IRS typically treats forgiven debt as taxable income, but the government can provide tax relief in certain circumstances. For example, the Mortgage Forgiveness Debt Relief Act provided temporary relief for forgiven mortgage debt, though similar provisions haven’t been extended to credit card debt forgiveness.
- Military protections: The Servicemembers Civil Relief Act (SCRA) provides active-duty military members with certain protections, including interest rate caps on credit card debt incurred before active service, though this is limitation rather than forgiveness.
The government also funds nonprofit credit counseling agencies and financial education programs that can help consumers manage debt, but these programs facilitate negotiation and repayment rather than government-funded forgiveness.
Who can actually forgive credit card debt
Since the government cannot forgive credit card debt, who can? The answer is straightforward: only the creditor who owns the debt—or someone acting on their behalf—has the authority to forgive it. Here are the realistic scenarios in which credit card debt might be forgiven or reduced:
The credit card company itself
Credit card issuers have the sole authority to forgive debt owed to them. They rarely do this voluntarily, but there are situations where they might agree to settle for less than the full amount:
- Hardship programs: Many credit card companies offer internal hardship programs for customers facing genuine financial emergencies like job loss, medical crises, or natural disasters. These programs might temporarily reduce interest rates, waive fees, or create modified payment plans, though full forgiveness is rare.
- Settlement negotiations: When an account becomes severely delinquent—often 90 to 180 days past due—credit card companies may be willing to negotiate a settlement for less than the full balance. They make this business decision because they’d rather recover some portion of the debt than risk getting nothing if you declare bankruptcy. Settlements typically range from 40% to 60% of the original balance, though this varies considerably.
- Charge-off decisions: After about 180 days of non-payment, creditors typically “charge off” the debt, writing it off as a loss for tax and accounting purposes. However, this doesn’t mean the debt is forgiven—it usually means it’s being sold to a debt collector or that the creditor will pursue collection through other means.
Debt settlement companies
Debt settlement companies are for-profit businesses that negotiate with creditors on your behalf to reduce your total debt. They typically charge fees of 15% to 25% of your enrolled debt or the amount saved. Here’s how they work and what to watch out for:
- The process usually involves stopping payments to your creditors while building up funds in a dedicated account.
- Once enough money has accumulated, the settlement company negotiates with creditors to accept a lump-sum payment for less than you owe. The theory is that creditors would rather receive partial payment than risk receiving nothing.
- This approach comes with some risks. While you’re not paying creditors, your credit score is damaged, late fees and interest accumulate, and you may face lawsuits. People who drop out of these programs before completion end up worse off than when they started.
The Federal Trade Commission (FTC) has issued specific rules for debt settlement companies, including prohibiting them from collecting fees before actually settling a debt. Despite these protections, consumers should thoroughly research any company before enrolling.
Nonprofit credit counseling agencies
Nonprofit credit counseling agencies offer a more legitimate alternative to for-profit debt settlement companies. These organizations, often funded through grants and small fees from creditors, provide free or low-cost services including:
- Debt management plans (DMPs): These are structured repayment plans negotiated with your creditors. The counseling agency works with creditors to potentially reduce interest rates, waive fees, and create a single monthly payment that you make to the agency, which then distributes it to your creditors. Importantly, you typically pay back the full principal amount—this isn’t debt forgiveness, but it can make debt more manageable.
- Financial education and budgeting help: Reputable agencies provide education on managing money, creating budgets, and avoiding future debt problems.
- Housing counseling: Many also offer foreclosure prevention and housing counseling services.
To find legitimate nonprofit credit counseling agencies, look for organizations approved by the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). Be wary of organizations that charge high upfront fees, make unrealistic promises, or pressure you into decisions.
Bankruptcy court
While technically not “forgiveness” in the traditional sense, bankruptcy is a legal process that can eliminate your obligation to repay credit card debt:
- Chapter 7 bankruptcy: Often called “liquidation bankruptcy,” this allows you to discharge most unsecured debts, including credit card debt, usually within three to six months. However, you must pass a means test showing that your income is below your state’s median, and you may have to surrender non-exempt assets. Chapter 7 bankruptcy remains on your credit report for ten years and can significantly impact your ability to obtain credit, rent housing, or even get certain jobs.
- Chapter 13 bankruptcy: This involves creating a three-to-five-year repayment plan based on your income. You pay what you can afford during this period, and any remaining unsecured debt (including credit cards) may be discharged at the end. Chapter 13 allows you to keep more assets but requires steady income and commitment to the repayment plan. It remains on your credit report for seven years.
Bankruptcy should be considered a last resort because of its severe and long-lasting consequences, but it is a legitimate legal option that provides a fresh start when debt becomes truly unmanageable.
Red flags: Scams promising government debt forgiveness
The false notion that the government can forgive credit card debt has spawned an entire industry of scams targeting desperate consumers. Here are warning signs that you’re dealing with a fraudulent scheme:
- Claims of government programs: Any company claiming there’s a government program to forgive credit card debt is lying. There is no such program, full stop.
- Upfront fees: Legitimate debt relief takes time. Companies demanding large upfront fees before providing services are often scams. The FTC’s Telemarketing Sales Rule prohibits debt relief companies from charging fees before settling or reducing a customer’s debt.
- Guarantees of specific results: No one can guarantee they can settle your debts for a specific percentage or that they can stop all collection calls and lawsuits. Outcomes depend on individual circumstances and creditor cooperation.
- Pressure tactics: Scammers create urgency, claiming programs are about to expire or that you must act immediately. Legitimate organizations give you time to make informed decisions.
- Requests for sensitive information: Be extremely cautious about providing Social Security numbers, bank account information, or credit card numbers to unsolicited callers or companies you haven’t thoroughly vetted.
- “New government programs”: Scammers often pose as government agencies or claim affiliation with government debt relief programs, especially after actual government actions like stimulus payments or student loan forgiveness discussions.
If you believe you’ve been targeted by a debt relief scam, report it to the FTC at ReportFraud.ftc.gov, your state attorney general, and the Consumer Financial Protection Bureau.
The bottom line
The government cannot and will not forgive your credit card debt. This is private debt between you and financial institutions, and the government lacks both the legal authority and the means to cancel it. Anyone claiming otherwise is either misinformed or attempting to scam you.
However, this doesn’t mean you’re without options. Credit card debt can be negotiated, restructured, or discharged through legal means, but all of these paths involve working with your creditors, entering formal debt management or settlement programs, or using the bankruptcy system. Each approach has significant trade-offs and consequences that must be carefully weighed.
There’s always JG Wentworth…
Do you have $10,000 or more in unsecured debt? If so, there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 48-60 months
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
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* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that you consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.