Debt Settlement Agreement
Definition and meaning
A Debt Settlement Agreement is a legal document that outlines the terms under which a debtor agrees to repay a portion of their outstanding debt to a creditor. This agreement is typically reached after negotiations between both parties, allowing the debtor to settle their debts for less than the full amount owed, often in a lump sum payment.
How to complete a form
To complete a Debt Settlement Agreement, follow these steps:
- Enter the date of the agreement.
- Fill in the names and addresses of both the Creditor and Debtor.
- Clearly state the total amount of debt owed.
- Detail the specific obligation related to the debt.
- Define the new payment terms agreed upon by both parties.
- Sign and date the agreement in the presence of witnesses if required.
Who should use this form
This form is useful for individuals or businesses facing financial difficulties and seeking to negotiate a resolution to their debts. It is particularly relevant for those who wish to obtain a legally binding commitment from their creditors to settle outstanding obligations for less than the full amount. Users include:
- Consumers dealing with credit card debt.
- Small business owners with unpaid invoices.
- Individuals looking to resolve medical or personal loans.
Key components of the form
A Debt Settlement Agreement typically includes the following key components:
- Parties involved: Names and addresses of the Creditor and Debtor.
- Debt acknowledgment: The amount owed and the nature of the obligation.
- Payment terms: Details on how and when payments will be made to settle the debt.
- Default conditions: Consequences if the debtor fails to comply with the payment terms.
- Satisfaction clause: Confirmation that the debt will be cancelled upon full payment.
Form popularity
FAQ
Offer a specific dollar amount that is roughly 30% of your outstanding account balance. The lender will probably counter with a higher percentage or dollar amount. If anything above 50% is suggested, consider trying to settle with a different creditor or simply put the money in savings to help pay future monthly bills.
The creditor and/or debt collectors name. The date the letter was drafted. Your name. Your account number.
A study by the Center for Responsible Lending showed that on average debts are settled at 48% of the outstanding balance. But that balance increases 20 percent due to late fees and other charges the creditor might impose during negotiation.
Assess your situation. Research your creditors. Start a settlement fund. Make the creditor an offer. Review a written settlement agreement. Pay the agreed-upon settlement amount.
"If you're happy with their offer, and you should be because it's less than what you actually owe them, then you should at least consider it," he says. The alternative, according to Ulzheimer, is the creditor either outsourcing the debt to a collector or even suing you.
It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.
Aim to Pay 50% or Less of Your Unsecured Debt If you decide to try to settle your unsecured debts, aim to pay 50% or less. It might take some time to get to this point, but most unsecured creditors will agree to take around 30% to 50% of the debt. So, start with a lower offerabout 15%and negotiate from there.
What percentage should I offer a full and final settlement? It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.