Debt forgiveness

The term debt forgiveness basically covers all the actions that take place between a creditor and a debtor where the debt is forgiven in whole or in part. Forgiveness means that all or part of an amount (a debt) is written off or reduced. This means that the debtor receives a lower amount owed.

Debt forgiveness can take many different forms and under many different conditions. It is basically up to the creditor to set the framework for debt forgiveness.

Some creditors, debt collectors and lawyers have debt forgiveness policies, while others have a policy of never granting it.

Debt forgiveness is one of the tools that creditors, debt collectors and lawyers can use in a debt collection process.

Why offer debt forgiveness?

Not all creditors, lawyers or debt collectors offer debt forgiveness, and it's rare that it's actually necessary to offer it.

Debt forgiveness is a trade-off of whether you want your claim paid within a shorter period of time with a reduced principal rather than waiting longer, or perhaps not getting your claim at all.

Debt forgiveness can be offered under many terms and conditions, but in general, debt forgiveness should be seen as a move by the creditor to accommodate and recognize the debtor's financial situation.

With debt relief, you as a creditor have the option to grant relief under certain conditions or terms. For example, terms such as the debtor paying the full principal now in exchange for the creditor or debt collector waiving interest, fees and other costs.

Always remember to get a written agreement about debt forgiveness so that any conditions are written into the terms. For example, it may be that the debt forgiveness is conditional on certain things being fulfilled first - for example, that a payment is made.

What considerations should be made prior to debt forgiveness?

Debt forgiveness should be carefully considered every time, and you should ask yourself the following questions:

• Do we believe that debt forgiveness can solve all or part of the debt problem here and now?
• Do we have a view on whether the debtor's financial situation is so bad that it is better to get a little here and now rather than going for the full amount but never getting it?
• Is the debtor of an age where it is realistic that we will be able to collect the full principal at a later date?
• Is the debtor of an age where it is not realistic to collect the full principal at a later date?

Basically, debt forgiveness should only be granted if you as a creditor want to facilitate a settlement of the debt and do not believe there is a prospect of recovering the full amount.

In addition, debt forgiveness is very much about speed: As a creditor, do you have the time, desire and opportunity to wait for the full amount, rather than accept a lower payment and close the case here and now?