Debt forgiveness, remission or forgiveness is the legal act by which a creditor expresses his will to fully or partially extinguish his credit right, without receiving anything in return. It supposes the extinction of (all or part of) the obligations that a debtor has towards his creditor.
The term debt relief is used many times 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) forgiveness of the debt, while the removal is the cessation of the payment of that debt.
Types of debt forgiveness
There are several types of forgiveness:
- Voluntary : as a general rule it is the most common. It consists of the waiver of the right by the creditor.
- Forced : exceptionally, the creditor may be forced to waive said right.This type of forgiveness can be, for example, in a business bankruptcy or in a situation of bankruptcy, where it is a matter of saving a situation while seeking the least damages for the parties involved.
- Inter vivos : when the forgiveness occurs between living natural or legal persons.
- Mortis causa : when the death of the debtor results in the cancellation of the debt.
- Total : when the entire debt is waived.
- Partial : when part of the debt is waived.
If the debtor does not have the consent of the creditor and will stop paying the debt, it is considered a default or non-payment of the debt.
The creditor will consider giving up 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 is made and accepted by the debtor, the obligation is officially extinguished.
There are two areas where write-offs take place, since the debt in question can be private or public:
- If it is private debt, the debtors are people or companies (that is, natural or legal persons), and there are precedents since ancient times, specifically in the Middle East and Ancient Greece.
- In public debt, the debtors are the public administrations of a country. The history of takedowns in the public sphere is much more recent since public debt as such appears at the end of the 17th century.
In the case of private debt, a write-off or forgiveness could be considered. However, in the case of public debt, as it is not a free waiver by creditors, and since it is an initiative of the debtor party, it would be adjusted to other legal assumptions such as the declaration of default or default.