Is it permissible to consider a debt as a charity on behalf of the insolvent debtor, and can this debt be considered a charity on behalf of another person who is indebted to me, and to whom I have despaired of delivering his due?

Waiving a debt for an insolvent person is among the best forms of charity. Allah has called it charity and has informed that it is better for the one who gives it. As for waiving a debt owed to you by someone in exchange for a right you owe to another person, whom you have despaired of delivering the right to, that is not sufficient. This is because it is considered a means of benefiting yourself and recovering your own debt. Therefore, it is not considered charity for the right that is due from you to others, and the reward for it will not be like the reward for a complete charity.