What does it mean to forgive a debt?

by Lisa Baker

There are situations in which it is impossible to repay a debt on a regular basis, so you should opt for measures that harm both parties as little as possible, such as debt forgiveness . In this article we tell you what it means to forgive a debt, how to formalize it and the requirements that are needed.

Forgive a debt: what is it?

Debt forgiveness is a legal act in which a creditor decides to fully or partially forgive a debt, without receiving anything in return . It is carried out in a situation of prolonged default and is considered as an alternative with less traumatic consequences for the debtor than an indefinite delay in payments.

Mainly, the objective of forgiving a debt is that the debtor can meet even a part of his obligations in payments . Thus, it is an act that benefits both parties.

Forgive a debt: how is it formalized?

Mainly, there are two ways to carry out a debt forgiveness . 

  1. Express forgiveness. It consists of acknowledging the debt before a notary or by means of a private forgiveness document that reflects the agreement reached between the creditor and the debtor. 

In this case, if it is a judicial procedure for a debt claim, it will have to be claimed before the Court. 

  1. Tacit forgiveness. According to the Civil Code, this situation occurs when the forgiveness can be understood or deducted from the actions of the creditor. 

Requirements to forgive a debt

The cancellation of a debt can be carried out by both individuals and companies (natural or legal persons). In addition, it can also be linked to debts with public administrations. 
To formalize the cancellation of a debt, the existence of a document that serves as proof is necessary . This document will reflect the existence of a failed legal debt or business, if there is a damaging legal liability and that, by mutual agreement between the parties involved, the situation has been resolved with the cancellation of the debt.

Types of debt forgiveness

There are several types of forgiveness classified by the reason for which it occurs. 

Based on the amount of debt forgiven:

  • Total: when there is a waiver of all debt.
  • Partial: when only part of the debt is waived. 

According to the vital circumstances in which it occurs:

  • Inter vivos: when the forgiveness is carried out between living natural or legal persons. 
  • Mortis causa: when it occurs because the debtor has died. 

According to the conditions in which it is carried out: 

  • Voluntary: it is the most common as a general rule. It consists of the waiver of the debt by the creditor. 
  • Forced: happens when the creditor is forced to waive their right to collect the debt. This situation can occur in the event of a business bankruptcy or bankruptcy situation, in which an attempt is made to save a situation in which the parties involved suffer the least possible damage.

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