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i The advice on this page applies to anyone with personal debts taken out in the UK.

Putting together a full and final settlement offer

If you’ve received a lump sum of money, you can use this to pay back your creditors by arranging a 'full and final settlement'.

You can get a lump sum of money from selling an asset, such as a property or a vehicle, receiving an inheritance, or it could be a gift from family or friends.

Depending on how much money you have, you might be able to repay all of the money you owe and become debt free.

But if the lump sum you have is less than the amount you owe to your debts you can make ‘full and final settlement’ offers.

This means offering the lump sum you have in return for your creditors agreeing to ‘write off’ the rest of the debt.

"Get in touch with StepChange, you'll wish you'd done it sooner" Rob, Wiltshire

You can make settlement offers to all of your debts, sharing out the lump sum fairly among them. 

Not all creditors will be willing to accept reduced settlement offers. They’re more likely to agree this if it would otherwise take you a long time to repay them.

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.

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How does a full and final settlement appear on my credit file?

If you agree a full and final settlement your creditor will mark the debt as ‘partially settled’ on your credit file. This shows future creditors that the debt was cleared for less than the full amount, and this could affect their decision about whether to lend to you.

The account will be removed from your credit file six years after it was partially settled, or six years after the date it defaulted if this was earlier.

Get some expert help and advice

If you’ve received a lump sum of money and you’re struggling to repay your debts use our online debt advice tool or call us (free from all landlines and mobiles). 

We'll provide you with a budget and debt solution that’s specifically tailored to your situation, so you know you’re getting the right advice.

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If it’s the best solution for you we have a specialist debt advice team who can help you make full and final settlement offers to your creditors.