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After WWI, the Allies owed a huge amount of money to the US. In the early 1920s, the US negotiated the debt down to a total of about $11.5 billion. The US expected that the Allies would repay this money.
The Allies, in contrast, did not think they should have to repay. They felt that they had paid the loans in blood since they had fought for years before the US entered the war. They also argued that they could not possibly repay the loans unless they could keep getting war reparations from Germany.
Once the Great Depression started, there was no way that the loans were going to be repaid. In 1931, President Hoover announced a moratorium on German reparations and Allied payments to the US. After that moratorium expired, the Allies simply defaulted on their debt and the US did not really try to do anything about it.
So, the US dealt with this tangle by repeatedly lowering the amount that they demanded and finally giving up on collecting the debt altogether.
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