Debt Relief Mechanisms: A Comprehensive Overview
Debt Relief Mechanisms
Compensation
Compensation occurs when two parties, each acting as both debtor and creditor to the other, extinguish their mutual obligations. The extent of the extinguishment depends on the amounts owed. If the debts are equal, the obligations are fully extinguished (total compensation). If one debt is smaller, it extinguishes the larger debt to the extent of its value (partial compensation). Accessories, such as interest and guarantees, are also extinguished proportionally.
Elements of Compensation
- Two persons
- Mutual debtor and creditor relationship
- Debtor and creditor roles held in their own right
Types of Compensation
Legal Compensation
This applies when both debts:
- Involve money or fungible goods of the same kind and quality, specified in the originating contract.
- Are liquid (have a determined or easily determinable amount).
- Are due and payable.
Conventional Compensation
Parties can agree to offset debts even if they don’t meet the requirements for legal compensation (e.g., not liquid or not yet due).
Judicial Compensation
Occurs during legal proceedings when a debt becomes liquid or due and payable.
Optional Compensation
One creditor offers to offset their credit against a debt they owe to the other party. Compensation occurs only if the other party accepts.
Principles of Compensation
- Waiver: Compensation can be waived expressly or implicitly.
- Limited Scope: Applies only to debtors and creditors acting in their own right.
- Transfer Requires Consent: Transferring a credit subject to potential offset requires the debtor’s consent.
Non-Applicable Scenarios
Compensation does not apply to debts:
- Explicitly excluded by agreement
- Resulting from dispossession
- For necessities like food
- Related to annuities
- Involving minimum wage payments
- Concerning deposited goods
- Related to taxes (unless legally authorized)
Confusion
Confusion arises when the roles of creditor and debtor merge in the same person, typically through legal succession (e.g., inheritance or assignment). This extinguishes the debt.
Effects of Confusion
Confusion releases the debtor from the obligation.
Types of Confusion
- Total Confusion: The entire debt is extinguished.
- Partial Confusion: Only a portion of the debt is extinguished.
Submission of Debt (Remission)
The creditor voluntarily and unilaterally relinquishes the right to demand payment from the debtor, in whole or in part. This is also known as debt forgiveness.
Effects of Submission
Extinguishes the credit and any associated security interests (e.g., mortgages). However, remitting the security interest does not extinguish the primary credit.
Forms of Submission
- Express: The creditor explicitly declares their intention, orally or in writing.
- Tacit: The creditor voluntarily surrenders the document evidencing the debt.
Differences Between Waiver and Remission
- Waiver is a broader concept applying to various rights; remission is a specific type of waiver for debts.
- Waiver can benefit any person; remission benefits only the debtor.
Legality
Remission is a unilateral act; the debtor’s consent is not required.
Waiver
A unilateral legal act of relinquishing a right.
Elements of Waiver
- Capacity to waive: The person must have full legal capacity.
- Waivable rights: Not all rights can be waived.
Supervening Impossibility
Unforeseen events beyond the debtor’s control can discharge the obligation.
Mora (Delay)
Unjustified delay in fulfilling an obligation.
Fortuitous Event
An unavoidable natural event (e.g., earthquake, storm) that prevents performance.
Force Majeure
An unavoidable human act (e.g., war, strike) that prevents performance.
Generic and Specific Goods
Generic goods are interchangeable; specific goods are unique and irreplaceable.
Prescription
Extinguishment of obligations due to the passage of time and creditor inaction.
Negative Prescription
Releases the debtor from an obligation not enforced within a specific timeframe.
Elements of Prescription
- Creditor’s inactivity
- Specified time period
Effects of Prescription
Prevents the creditor from enforcing the obligation and releases the debtor.