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In certain circumstances your creditors may accept a one-off, lump sum payment, which is less than the current outstanding debt with the rest of the debt being written off- the lump sum is accepted as a ‘Full and Final Settlement’. A full and final offer of settlement can be made any type of debt such as a credit card, overdraft, personal loans, mail order catalogues, store cards etc.
This option to settle your debts via a full and final settlement to your creditors is only suitable if you have access to a large amount of capital, or if you have assets such as property where you are prepared to release some of the equity in order to raise the required amount of money to make an offer to your creditors.
We strongly advise you seek advice before you decide to sell anything (particularly if you are intending to sell any investments, endowments or insurance policies, you should seek independent financial advice). A professional debt adviser may be able to provide you with an alternative strategy for dealing with your debts.
A creditor is likely to accept a full and final offer on a debt if the offer is realistic and it is mutually the best way forward in resolving the debt issue. For example, if the creditor were to make you bankrupt instead, a large percentage of the lump sum would be swallowed up in legal fees.
The advantages of making a Full and Final Settlement Offer include:
- If the creditor accepts your offer, you will pay less than you would otherwise have to if you were to repay the full amount of the debt
- The debt will be paid off more quickly and easily than if you were to repay the debt over a longer term
- Providing that your creditors agree to your offer, it offers you a fresh start
- It should provide your creditors with a more attractive option than applying to make you bankrupt, due to the fact that in bankruptcy a large percentage of the lump sum would be swallowed up in legal fees
How Do I Make A Full and Final Offer
We strongly recommend that you seek professional debt advice when making a Full and Final Settlement Offer. Debt Plan Direct can advise you on what to do, how a full and final settlement offer works and help you to draft a suitable letter likely to be accepted.
Any offers you send or receive from your creditors should be sent in writing and copies kept as a record to combat any disputes should they arise in future. If a creditor accepts a smaller sum in Full and Final Settlement, it is important that you have a deed drawn up to show this. It is important not to send any payments until your offer is accepted in writing.
If you are making a full and final offer to your creditors to settle multiple debts with different creditors the offers you make will need to be calculated using a ‘pro rata’ calculation. This ensures that each creditor will receive a fair proportion of the available money, directly proportionate to the total balance you owe each creditor.
If your full and final settlement is accepted, you need to ensure the creditor updates your record with the Credit Reference Agencies to show the debt as ‘settled’ or ‘satisfied’ on your credit record. This will keep your credit file up to date and will increase your ability to obtain credit again.
For further information on making a full and final settlement offer to your creditors please contact us or call an adviser now on 0845 055 8152.
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