Forgiven Debt

Matt asks if he needs to pay debts that have officially been forgiven. Dave helps to clarify which debts can be forgiven and which are simply written off.

QUESTION: Matt on Facebook asks if he needs to pay debts that have officially been forgiven. Dave helps to clarify which debts can be forgiven and which are simply written off.

ANSWER: Commercial debts such as an old credit card debt are almost never forgiven. It might be in default or might be that they’ve written it off, but that is not forgiven.

If you owe your parents money and they say they’ve forgiven the debt, then you don’t need to pay it off. They have forgiven the debt. My grandfather loaned me money when I was in college to pay for part of my tuition, and he forgave that debt. I didn’t owe the money—morally, legally or any other way. He forgave the debt, and I didn’t feel the need to pay it off even when I had the money later.

It’s important that you have that written down and that it’s communicated clearly to everyone involved. I have had debts that were owed to me that I’ve forgiven. I don’t expect them to be paid. It’s forgiven, and it’s over.

But in a commercial setting, meaning you are dealing with a bank or a lender, that doesn’t happen. If you settle the debt, that happens. You can settle it for less than is owed if you are behind. For example, I’ve had people buy radio ads in years past and then didn’t pay the bill.

If somebody owes me $20,000 for a radio ad and hasn’t paid in two years, and they come in saying they are really hurting, I’ll tell them that if they can scrounge up $5,000, I’ll take that and we can settle the debt. We made a new deal based on the bad situation you’ve gotten yourself into.

If a credit card company decides to take less because you are not able to pay and they’d rather have a bird in the hand than six promises in the bush, that’s a business decision and it has changed the deal, both morally and, if you get it in writing, legally. Then you don’t need to go back and pay that either.

Forgiven means it’s over. But Chase or MasterCard is not going to call you and forgive the debt.