GUIDE TO FULL AND FINAL SETTLEMENTS

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1 GUIDE TO FULL AND FINAL SETTLEMENTS

2 2 Full and Final Settlement offers Fact Sheet A full a final settlement happens when you ask a creditor to let you pay off a lump sum, which is less than the full balance that you owe. In return for this lump sum, the creditor will then agree to write off the rest of the debt. This is a good idea if you have come into some money, or have some savings put away that you can use. You need to explain to your creditor that this money will not always be available and that your future circumstances are unlikely to change, so it is in their interest to accept your offer. Tip on How to Make an Offer Make the offer in writing and ensure to keep copies (on the next page).

3 3 Sample letter FULL & FINAL SETTLEMENT LETTER FOR ANY DEBT Your name and address Date Name and address of creditor Dear Sir/Madam Account No I am writing to you with reference to the debt which you are claiming for the above account. Unfortunately I am unable to offer to pay the full amount in which you are owed (details of your circumstances and financial situation). However, I can raise (the amount you can afford to pay). This offer is made on the understanding that, once accepted, neither you nor any other organisation will take any further action against me to pursue this debt in any way and that I will be released from any liability. I also wish to request that, if accepted, you will mark any entry on a credit reference agency file as "satisfied" in full. I can make the payment within (number of days or weeks) of receiving your written agreement of my offer and method of payment. I look forward to hearing from you. Yours faithfully

4 4 1. It is very vital that you make sure your creditor accepts your full and final settlement offer, in writing. You must ensure you keep a copy of the letter, in case there is a dispute which could happen in years to come. 2. Never send a payment until the offer has been accepted. 3. If you can, try to get a third party to send the money on your behalf. This helps your agreement to be more legally binding. 4. If the debt is very large, you can have a formal agreement setup by a solicitor; however, this is not normally necessary. 5. Also ensure that your creditor agrees in writing to make changes to your credit file, to show the balance is satisfied. You can check this have been done by asking the credit reference agencies for a copy of your file. How to work out what you can pay If you have a lump sum that you need to divide between numerous creditors, then you can do this by making pro-rata offers. A pro-rata offer is when a creditor gets a fair share of the money available, for example; the creditor you owe the most will get the biggest amount, and the one you owe the least the smallest. To do this you need to work out the exact outstanding balance that you owe, then use the formula to work out how much you have to offer. See the example on the next page.

5 5 The money you have available x the amounts of debt you owe this particular creditor by the total amount that you owe = your offer to the creditor FOR EXAMPLE You may owe 5,000 to 4 different creditors, but only have 2,500 to pay them all off. You owe 1,150 to the bank 600 to a credit card company 2,250 to a loan company 1,000 to a store card By using the above formula you can work out how to split it equally and fairly between your creditors.e.g. 2,500 (lump sum available) x 1,150 (debt to the bank) 5,000 (the total amount you owe) = 575 (offer to the bank) Your offer to the bank will be 575. You then do the same calculation for each of your creditors. You should send written letters to all your creditors, along with the offers, but also make them aware of the other debts that you have and what you can afford, for example CREDITOR OWED SETTLEMENT OFFER Bank 1, Credit Card Loans 2,250 1,125 Store Card 1, Total 5,000 2,500 By providing your creditors with this information then they know they are all being treated fairly. If some of the creditors refuse, then re- write to them asking them to reconsider. State if any of your other creditors have accepted your offer. However, do not pay any lump sum without all the creditors agreeing to it first. Ensure to always keep copies of all correspondence.

6 6 Notes