Debt forgiveness



The cancellation, remission or forgiveness of the debt is the legal act by which a creditor expresses its desire to extinguish all or part of their credit right , without receiving anything in return. It supposes the extinction of (all or part of) the obligations that a debtor has toward its creditor.


The term is often used to remove the debt to define the same concept. Although they mean practically the same thing, the difference is that the cancellation of the debt is the official (legal) pardon of the debt, whereas the cancellation is the cessation of the payment of that debt.


Types of debt cancellation


Types of debt cancellation

There are several types of forgiveness:


Voluntary: as a general rule it is the most common. It consists in the waiver of the right by the creditor.

Forced: exceptionally, the creditor can be imposed the waiver of this right This type of remission can be for example in a business bankruptcy or in a situation of insolvency, where it is a matter of saving a situation seeking the least damage to the parties involved.

Inter vivos : when the cancellation occurs between natural or legal persons alive.

Mortis causa: when following the death of the debtor leads to the cancellation of the debt.

Total: when the entire debt is waived.

Partial: when a part of the debt is waived.

If the debtor does not have the consent of the creditor and stops paying the debt, it is considered a  default or non-payment of the debt .


The creditor will consider renouncing part or all of the debt when it considers that the consequences of a default will be much more drastic for one or both parties, with debt forgiveness being the best alternative. Once the resignation has been made and accepted by the debtor, the obligation is officially extinguished.


There are two areas where take-offs take place, since the debt in question can be private or public:


There are two areas where take-offs take place, since the debt in question can be private or public:


If it is  private debt , the debtors are individuals or companies (that is, individuals or legal entities), and there are precedents from Antiquity, specifically in the Middle East and Ancient Greece.

In  public debt , debtors are the public administrations of a country. The history of public debt reliefs is much more recent since the public debt as such appears at the end of the 17th century.

In the case of private debt, a withdrawal or remission could be considered. However, in the case of public debt, as it is not a free resignation by the creditors, and being an initiative of the debtor party, it would be adjusted to other legal assumptions such as the  declaration of default or default .

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