Is money returned by a friend, who had defaulted on repaying part of a usurious loan that the questioner had paid on his behalf, considered lawful (halal) or unlawful (haram)? And if it is unlawful, what should the questioner do with it?

A loan with interest is usury itself, and it is one of the gravest sins. Allah Almighty says: "O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers." The Prophet, peace and blessings be upon him, said: "Usury has seventy-three doors, the easiest of which is like a man marrying his mother." What is obligatory is repentance, regret, and seeking forgiveness. One who repents from sin is like one who has no sin, and "Indeed, Allah loves those who repent." As for the amount your friend gave you as repayment for a debt you paid on his behalf to the usurious bank, it is rightfully yours, and there is nothing against you in it.