However, the creditors are under no obligation to accept the offer and will only do so if it is reasonable.
What is a reasonable Full & Final Settlement Offer?
There is no set figure that constitutes a reasonable offer because it entirely depends on your financial situation, and the creditor. Very low offers may be rejected but if you can offer a significant portion of the money you owe, it is more likely to be considered.
An important factor in increasing the likelihood of thesettlementbeing accepted is that you offer equal amounts to all creditors. For example, if you owe a total of £10,000 to multiple creditors and you receive a lump sum of £5,000, you should offer each creditor 50% of what you owe them.
When you offer a Full & Final Settlement, you are offering a lump sum. The creditor benefits because they can recoup a portion of the debt immediately instead of waiting for monthly payments. You benefit because you pay less than the full amount and you can avoid interest payments.
Removing settled Debts from a Credit Report
When you agree to a Full and Final Settlement with your creditors, your outstanding debt may be marked as ‘partially settled’ on your credit report. This shows that you didn’t pay back the full amount and you cleared them for less than the total you were due to repay. Future creditors will be able to see this and it can have an impact on your ability to get credit. This is something you should consider before deciding whether a Full and Final Settlement is the right option for you.
However, the partially settled debt only remains on your credit report for six years. Once the account is removed, it will no longer have a negative impact on your credit score.
How to make a Full & Final Settlement Offer
Before submitting a proposal, you must keep in mind that some or all of your creditors may decide not to accept it. In this case, your debt repayments remain the same and creditors can still take legal action if you don’t pay them. So, you may need to consider alternative debt management solutions like an Individual Voluntary Agreement or Bankruptcyif this is the case.
There are certain recommended steps to follow when submitting your proposal and paying your settlement:
- Calculate your repayment offer– This must be submitted to your creditors.
- Request confirmation in writing –Make sure your creditors have confirmed their acceptance of your offer before you make any deposits.
- Archive letters from creditors –Keep all correspondence related to the settlement offer in case you need them again in the future (it is recommended you keep these letters for at least six years after you have settled the debt).
- Be prepared to negotiate with creditors –Creditors will not necessarily accept your proposal, so be prepared to negotiate with them separately. You should also decide what you will do if none of them accept it.
- Make payments on time –If the settlement is agreed, it is vital that you make your payments in full and on time to each creditor.
- Keep proof of payments –Keep all proof of payments on file. This will protect you in the future if your creditors attempt to collect the remaining debt.
