What is the clarification of the jurisprudential issue regarding "debt for debt" that permits its reconciliation with a specific item or debt to be received before separation, with an example of that?

Reconciling a debt with another debt is permissible, provided possession occurs before separation. If they separate before possession, it becomes a sale of debt for debt, which is forbidden by Islamic law.

This is what the Kuwaiti Encyclopedia of Fiqh states regarding the ruling on compensatory reconciliation (ṣulḥ al-muʿāwaḍah) in its four forms. It clarifies that reconciling a debt with another currency is like currency exchange (ṣarf). Reconciling an object with cash, or cash with an object, is like a sale. Reconciling a debt with a described object in one's liability (dhimmah) that is not of the same kind is valid according to the Hanafis, Malikis, and Hanbalis, but separation before possession is not allowed. According to the Shafi'is, specifying the reconciliation's consideration (badal al-ṣulḥ) at the session is required, but possession is not required unless both items are usurious (ribawi). As for reconciling cash with a usufruct (manfaʿah), its ruling is that of leasing (ijārah).