The annoying thing is that a debt repayment contract carries many risks. As a general rule, the debt settlement agreement involves paying someone a hefty fee to negotiate with your creditors, and offers a lump sum less than what you actually owe. But during the negotiation period, you must stop paying your creditors, which can have a devastating effect on your creditworthiness. And your creditors don`t have to accept the debt equalization contract – instead, they can take legal action against you by adding additional fines and legal fees to your account. The London Club, which first met in 1976, is conducting debt negotiations between national governments and commercial banks. There are two main elements in debt rescheduling: debt restructuring, which extends old debt maturities, with lower interest rates, and debt reduction if the face value of existing debt is reduced. Both types of rescheduling involve a loss of the current value of creditors` claims, known as “haircuts.” The debt cancellation of highly indebted and underdeveloped developing countries was the subject of a broad coalition of development NGOs, Christian organizations and others under the banner of the Jubilee of the Year 2000 in the 1990s. The campaign, which, for example, took part in events at the G8 meeting in Birmingham in 1998, was successful in putting debt cancellation on the agenda of Western governments and international organizations such as the International Monetary Fund and the World Bank. The Highly Indebted Poor Countries Initiative (HIPC) was finally launched to systematically reduce the debt of the poorest countries, while ensuring that the money was spent to fight poverty.  The war debts of the First World War Allies in the United States had been suspended in 1931 – only Finland paid in full – and american public opinion demanded that repayments be resumed as a condition for post-war American aid. Germany had suspended its reparation payments, due under the 1919 treaty and paid to Great Britain to France and others, as well as its loans to the United States. Chancellor Konrad Adenauer has decided that lasting goodwill requires their recovery.
The 1953 Agreement on German External Debt, which took over Germany`s war reparations, is a remarkable example of the cancellation of international debt.   Civil war can also divert scarce resources from production to defence, as in the case of many African economies – about 80% of the world`s most indebted countries are African. Under U.S. tax law, debt forgiveness is considered income because it reduces liability and increases the taxpayer`s net worth. In the context of the bursting of the U.S. housing bubble, the Mortgage Forgiveness Debt Relief Act of 2007 provides that the cancelled debts of a principal residence will not be considered income, as the debt was cancelled during the 2007-2009 period.