![]() Such forgiveness may be nullified by a bankruptcy court under certain circumstances and may be seen as a transfer to defraud creditors in certain circumstances. Secured parties may lose security that they did not consider part of the forgiveness and rights to write off costs and attorneys’ fees may be lost. The other debtors may have their own claims for contribution against the forgiven debtor who may find him or herself facing the same claims, albeit via the intermediary of the other debtors. Rights of third parties can be altered by such cancellation and a creditor may find that it has waived a claim against other debtors by forgiving one debtor. Indeed, forgiveness of a debt may be deemed a “gift” from the creditor and actually impose gift tax on the creditor that can be substantial. Further, forgiveness of a debt can be a tax event for the debtor. Forgiveness of a debt does not necessarily allow a tax or accounting write off of the debt for the creditor. What many people fail to realize is that cancellation of debt can create other problems and issues that should be carefully considered before deciding to take that path. Cancellation of debt may be granted to individuals or businesses depending on the circumstances. Cancellation of debt refers to the releasing or forgiving of a debt in whole or part. Particularly in tough economic times but at all other times due to business realities, cancellation of outstanding debt may be a wise move for a creditor. ![]()
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