After taking the loan, we are usually satisfied because we were able to, for example, buy the dream apartment or electronic equipment. The excitement, however, quickly subsides, and after a while, the timely repayment of the commitment can become very difficult or even impossible, and not necessarily our fault.
In this case, we may be interested in the redemption of the loan (including, inter alia, the redemption of the student loan or the redemption of the housing loan), which seems to be a godsend. What do you need to know about this process?
Bank debt forgiveness – is it possible?
The bank may or may not cancel part or even part of the loan debt – but it depends only on its goodwill. It would seem, therefore, that it is impossible to write off a bank debt – after all, why would the bank agree to incur losses? In practice, however, there are situations in which you can actually count on at least partial write-off. Belong to them:
- death of the spouse and, consequently, reduction of income;
- permanent loss of work capacity;
- serious illness, disability;
- loss of property as a result of a disaster (fire, climate disaster).
Why can a bank be willing to reduce debt under certain circumstances? Debt collection and ultimately legal redress are burdensome, costly and lengthy. A solution is to sell the debt to a debt collection company, but in this way, you can recover only a small part of the debt.
Partially cancellation of bank debt to persons who find themselves in a very difficult situation and do not promise rapid improvement may paradoxically be beneficial for the bank. Lower debt means lower installments, and therefore easier repayment. Therefore, there is a much greater chance that the unredeemed part of the liability will be repaid and the bank will not be losing so badly.
The possibility of canceling a bank debt will be negatively affected by the fact that it has many other liabilities, as well as the assets at the debtor’s disposal. If the assets are large enough to collect a debt, it is unlikely that the loan application will be accepted.
Cancellation of the loan after the borrower’s death
The liability entered into does not disappear or is automatically written off with the death of the borrower. Therefore, the obligation to pay it falls on the heirs of the deceased. If the inheritance is accepted with the benefit of inventory, debts will have to be repaid to the amount of inherited property. After accepting the inheritance directly, the heir is obliged to pay the entire liability, even if it exceeds the value of the inherited property.
Therefore, is it possible to redeem the loan after the borrower’s death? Yes, but only partly and, as already mentioned above, it depends on the goodwill of the bank. An exception is a student loan, which will be discussed in more detail later in this article.
The bank may agree to a partial write-off of the loan after the borrower’s death if the heirs are in a bad financial condition and unable to settle the liability and debt collection would be too expensive.
Partial redemption of a housing loan granted until May 31, 1992
The first housing loans granted after the political transformation since 1990 are sometimes called “old portfolio” loans. They were contracted primarily by housing cooperatives for the construction of residential premises and later repaid by tenants. Due to the hyperinflation prevailing at the time, these loans were extremely expensive and repayment proved extremely difficult.
This problem was solved by the state, allowing for the write-off of capitalized interest and indebtedness due to the temporary redemption of interest on a loan taken up to May 31, 1992, after 20 years of timely and regular repayment of the liability. On the one hand, it was a good solution, and on the other – it caused new difficulties as the canceled liability had to be indicated as revenue in the annual tax settlement.
People who could not afford to pay huge interest on the loan, in most cases would also not be able to pay the income tax on them. Therefore, in 2018, income from the cancellation of capitalized interest on a housing loan and the temporary redemption of income tax interest was released.
Redemption of student loans
Student loans are often called the cheapest loans in Poland. It is impossible to disagree with this statement: it is not enough that repayment begins only 2 years after graduation, the interest is very low. The fact that the law allows for partial or even full redemption of a student loan can also be nice.
Partial cancellation of student loans is possible due to:
- hard life situation;
- graduation in the group of the best students.
A difficult life situation is interpreted in particular as:
- loss of income by the borrower or his spouse, necessitating the use of social assistance benefits (e.g. unemployment benefits);
- sustaining damage as a result of a natural disaster or fire;
- illness of the borrower or a member of his family;
- the need to care for a disabled or sick family member.
How much of the loan will be canceled due to a difficult life situation depends on individual circumstances.
Students who have completed their studies with very good results can also count on a partial write-off, regardless of their financial situation. You may redeem:
- 20% credit – for a group of 5.01% to 10% of the best students;
- 35% credit – for a group from 1.01% to 5% of the best students;
- 50% credit – for a group of up to 1% of the best students.
The student loan may be completely canceled if:
- borrower’s death;
- permanent loss of repayment capacity;
- lack of legal possibility of pursuing claims.
Lack of legal redress means that the repayment of the liability cannot be enforced (for example, because the borrower is not working, there is no real estate or valuable movables), all paths have been exhausted and further attempts to pursue claims would involve unnecessary costs.
Borrowers must submit an application to the Minister of Science and Higher Education both in the case of a desire to completely or partially cancel the debt. You should attach to it all documents that confirm the legitimacy of the application (certificate from the rector of the university for the completion of studies among the best students, medical documentation, death certificate).