The Balfour Note of 1 August 1922, signed by Britain's acting Foreign Secretary Arthur Balfour, was sent to Britain's debtors: France, Italy, Yugoslavia, Romania, Portugal and Greece. Balfour claimed that the British government had reluctantly decided that the loans that those countries had received from HM Treasury should be paid back and that reparations from Germany should be collected due to the need for Britain to pay its creditor, the United States. [1]
Due to the inadequacy of British industry to produce munitions during the Great War, the British government had required munitions from America, and a large proportion of these munitions had been used by France, Italy and other European Allies. Britain owed America about £850 million, while the total war debts and reparations owed to Britain were nearly four times that figure, including £1.45 billion from Germany, £650 million from Russia, and £1.3 billion from its allies. [2]
Balfour pointed out that so far the British had not asked the Allies for either the payment of interest or the repayment of capital on the debts owed by them to Britain. However, "the American Government have required this country to pay the interest accrued since 1919 on the Anglo-American debt, to convert it from an unfunded debt to a funded debt, and to repay it by a sinking fund in 25 years." Balfour pointed out the interconnectedness of the combined debts, and suggested that if Great Britain were to repay their "undoubted obligations as a debtor" to the Americans, it would thereby be necessary to enforce her "not less undoubted rights as a creditor". Balfour suggested that the British government was prepared, through an international settlement, to remit (cancel) all debts due to Britain by the Allies along with the reparations owed by Germany, presuming that their obligations to America were also adjusted. Balfour also said:
In no circumstances do we propose to ask more from our debtors than is necessary to pay to our creditors. And, while we do not ask for more, all will admit that we can hardly be content with less. For it should not be forgotten, though it sometimes is, that our liabilities were incurred for others, not for ourselves. The food, the raw materials, the munitions required for the immense naval and military efforts of Great Britain, and half the £2,000,000,000 advanced to allies, were provided, not by means of foreign loans, but by internal borrowing and war taxation. Unfortunately a similar policy was beyond the power of other European nations. Appeal was therefore made to the Government of the United States; and under the arrangement then arrived at the United States insisted, in substance if not in form, that, though our allies were to spend the money, it was only on our security that they were prepared to lend it. This co-operative effort was of infinite value to the common cause, but it cannot be said that the role assigned in it to this country was one of special privilege or advantage. [3]
He then warned of the consequences of international indebtedness:
To generous minds it can never be agreeable, although, for reasons of State, it may perhaps be necessary, to regard the monetary aspect of this great event as a thing apart, to be torn from its historical setting and treated as no more than an ordinary commercial dealing between traders who borrow and capitalists who lend. There are, moreover, reasons of a different order, to which I have already referred, which increase the distaste with which His Majesty's Government adopt so fundamental an alteration in method of dealing with loans to allies. The economic ills from which the world is suffering are due to many causes, moral and material, which are quite outside the scope of this despatch. But among them must certainly be reckoned the weight of international indebtedness, with all its unhappy effects upon credit and exchange, upon national production and international trade. The peoples of all countries long for a speedy return to the normal. But how can the normal be reached while conditions so abnormal are permitted to prevail? And how can these conditions be cured by any remedies that seem at present likely to be applied? [4]
The Note was "universally condemned in the United States". [1] The United States Secretary of the Treasury, Andrew W. Mellon, was furious and regarded the Note as "a lie". The Under Secretary of the Treasury, Seymour Parker Gilbert, said the Note was "dangerously near to an attempt at repudiation...The insistence of the British on the theory that our loans to them were made in order to help their allies is about as irritating a piece of nonsense as has been pulled in the whole discussion about inter-governmental debts". [1]
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.
In finance, default is failure to meet the legal obligations of a loan, for example when a home buyer fails to make a mortgage payment, or when a corporation or government fails to pay a bond which has reached maturity. A national or sovereign default is the failure or refusal of a government to repay its national debt.
Debt is an obligation that requires one party, the debtor, to pay money borrowed or otherwise withheld from another party, the creditor. Debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. In financial accounting, debt is a type of financial transaction, as distinct from equity.
Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations.
Title 11 of the United States Code sets forth the statutes governing the various types of relief for bankruptcy in the United States. Chapter 13 of the United States Bankruptcy Code provides an individual with the opportunity to propose a plan of reorganization to reorganize their financial affairs while under the bankruptcy court's protection. The purpose of chapter 13 is to enable an individual with a regular source of income to propose a chapter 13 plan that provides for their various classes of creditors. Under chapter 13, the Bankruptcy Court has the power to approve a chapter 13 plan without the approval of creditors as long as it meets the statutory requirements under chapter 13. Chapter 13 plans are usually three to five years in length and may not exceed five years. Chapter 13 is in contrast to the purpose of Chapter 7, which does not provide for a plan of reorganization, but provides for the discharge of certain debt and the liquidation of non-exempt property. A Chapter 13 plan may be looked at as a form of debt consolidation, but a Chapter 13 allows a person to achieve much more than simply consolidating his or her unsecured debt such as credit cards and personal loans. A chapter 13 plan may provide for the four general categories of debt: priority claims, secured claims, priority unsecured claims, and general unsecured claims. Chapter 13 plans are often used to cure arrearages on a mortgage, avoid "underwater" junior mortgages or other liens, pay back taxes over time, or partially repay general unsecured debt. In recent years, some bankruptcy courts have allowed Chapter 13 to be used as a platform to expedite a mortgage modification application.
Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.
Paris Club is a group of officials from major creditor countries whose role is to find co-ordinated and sustainable solutions to the payment difficulties experienced by debtor countries. As debtor countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide an appropriate debt treatment.
A debtor or debitor is a legal entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this debt arrangement is a bank, the debtor is more often referred to as a borrower.
Distressed securities are securities over companies or government entities that are experiencing financial or operational distress, default, or are under bankruptcy. As far as debt securities, this is called distressed debt. Purchasing or holding such distressed-debt creates significant risk due to the possibility that bankruptcy may render such securities worthless.
Debt collection is the process of pursuing payments of money or other agreed-upon value owed to a creditor. The debtors may be by individuals or businesses. An organization that specializes in debt collection is known as a collection agency or debt collector. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed. Historically, debtors could face debt slavery, debtor's prison, or coercive collection methods. In the 21st century in many countries, legislation regulates debt collectors, and limits harassment and practices deemed unfair.
A vulture fund is a hedge fund, private-equity fund or distressed debt fund, that invests in debt considered to be very weak or in default, known as distressed securities. Investors in the fund profit by buying debt at a discounted price on a secondary market and then using numerous methods to subsequently sell the debt for a larger amount than the purchasing price. Debtors include companies, countries, and individuals.
A bankruptcy discharge is a court order that releases an individual or business from specific debts and obligations they owe to creditors. In other words, it's a legal process that eliminates the debtor's liability to pay certain types of debts they owe before filing the bankruptcy case.
The Latin American debt crisis was a financial crisis that originated in the early 1980s, often known as La Década Perdida, when Latin American countries reached a point where their foreign debt exceeded their earning power, and they could not repay it.
Credit counseling is commonly a process that is used to help individual debtors with debt settlement through education, budgeting and the use of a variety of tools with the goal to reduce and ultimately eliminate debt. Credit counseling is most often done by Credit counseling agencies that are empowered by contract to act on behalf of the debtor to negotiate with creditors to resolve debt that is beyond a debtor's ability to pay. Some of the agencies are non-profits that charge at no or non-fee rates, while others can be for-profit and include high fees. Regulations on credit counseling and Credit counseling agencies varies by country and sometimes within regions of the countries themselves. In the United States, individuals filing Chapter 13 bankruptcy are required to receive counseling.
The external debt of Haiti is a notable and controversial national debt which mostly stems from an outstanding 1825 compensation to former slavers of the French colonial empire and later 20th century's corruptions.
Debtors Anonymous (DA) is a twelve-step program for people who want to stop incurring unsecured debt. Collectively they attend more than 500 weekly meetings in fifteen countries, according to data released in 2011. Those who compulsively incur unsecured debt are said to be engaged in compulsive borrowing and are known as compulsive debtors.
The London Agreement on German External Debts, also known as the London Debt Agreement, was a debt relief treaty between the Federal Republic of Germany and creditor nations. The Agreement was signed in London on February 27, 1953, and came into force on September 16, 1953.
A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments may either be accompanied by that government's formal declaration that it will not pay its debts (repudiation), or it may be unannounced. A credit rating agency will take into account in its gradings capital, interest, extraneous and procedural defaults, and failures to abide by the terms of bonds or other debt instruments.
A tax refund interception, also referred to as a tax refund offset, is the act of an agency responsible for sending tax refunds using all or part of a refund to fulfill an obligation of the taxpayer rather than sending the money to the taxpayer him/herself.
A Treasury Note is a type of short term debt instrument issued by the United States prior to the creation of the Federal Reserve System in 1913. Without the alternatives offered by a federal paper money or a central bank, the U.S. government relied on these instruments for funding during periods of financial stress such as the War of 1812, the Panic of 1837, and the American Civil War. While the Treasury Notes, as issued, were neither legal tender nor representative money, some issues were used as money in lieu of an official federal paper money. However the motivation behind their issuance was always funding federal expenditures rather than the provision of a circulating medium. These notes typically were hand-signed, of large denomination, of large dimension, bore interest, were payable to the order of the owner, and matured in no more than three years – though some issues lacked one or more of these properties. Often they were receivable at face value by the government in payment of taxes and for purchases of publicly owned land, and thus "might to some extent be regarded as paper money." On many issues the interest rate was chosen to make interest calculations particularly easy, paying either 1, 1+1⁄2, or 2 cents per day on a $100 note.