How do full and final settlement offers work?
Firstly you need to work out how much to offer your creditors and then send this offer to them in writing. 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.
Always ask your creditors to confirm they accept your offer in writing before you send them any money.
Keep any letters your creditors send to you about the settlement offer just in case you need to refer to them again in the future. We recommend keeping these letters safe for at least six years after you’ve paid the settlement amount.
You may find not all your creditors are willing to accept your offer of settlement and you’ll have to negotiate with each one individually. It’s possible that none of your creditors will accept a full and final settlement.
If your offers are accepted, make sure you send payment to each creditor by the date they give you. Keep proof of payment.
What happens if my settlement offers are rejected?
If most or all of your creditors refuse the offer you may be able to use the money to apply for an IVA in England, Wales or Northern Ireland, or a trust deed in Scotland. These are legally-binding debt solutions arranged by an insolvency practitioner which write off part of your debts.
Usually IVAs or trust deeds are based on paying regular monthly instalments, but if you have a lump sum of money available you may be able to agree to pay this as a one-off amount instead.
The main advantage of an IVA or trust deed is that if a majority of the creditors accept it, the agreement is binding on all the creditors, including those who rejected it.
There are some disadvantages though:
- You’ll need an insolvency practitioner (IP) to arrange the IVA or trust deed for you, and they will charge fees
- IVAs and trust deeds are both types of insolvency and will be recorded on your credit file.
Our IVA and trust deed pages have more on their benefits and risks.