Factsheet | Full and Final Settlement offers
What are full and final settlement offers?
This fact sheet explains how to make offers in ‘full and final settlement’ to your creditors. This means that you ask the creditors to let you pay a lump-sum instead of the full balance you owe on the debt. In return for having a lump sum payment, the creditor agrees to write off the rest of the debt.
You may be able to do this because you have come into some money or have some savings you can use. Sometimes a friend or relative offers to put forward a lump-sum to help you pay off the creditors. Your circumstances may be very unlikely to change for the better in the future. It is very important that you explain to the creditors that the money will not be available forever and the friend or relative will not make the payments unless the offer is accepted.
- Information
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If you have already entered into a debt payment programme (DPP) under the Debt Arrangement Scheme (DAS) you will need to contact your approved money adviser to discuss the possibility of making an offer in full and final settlement to creditors participating in the DPP. The money adviser may be able to ask the creditors to agree to a composition (i.e. a partial write off of the debt). If this is accepted, the money adviser will contact the Office of the Accountant in Bankruptcy (who administers the scheme) to seek an early end to your DPP.
- Factsheet
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We have a fact sheet on the ‘Debt arrangement scheme’ which may be of assistance to you. Phone us for a copy.
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How to make an offer
- You can use the sample letter attached to make full and final settlement offers to your creditors.
- It is very important to make sure the creditor accepts your full and final settlement offer in writing. Make sure you keep a copy in case there is a dispute. This could happen years later and you may need the letter as proof.
- Remember
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Make sure you keep copies of any letters you send.
- Never send a lump-sum payment before the offer is accepted.
- It is a good idea to get a third party to send the money on your behalf. This helps your agreement to be more legally binding, if the creditor accepts the money via a third party.
- If you are settling a debt that is large or particularly important, you could have a formal agreement drawn up by a solicitor and signed by you and the creditor. This is not normally necessary.
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What happens to my credit reference file?
Make sure the creditor agrees in writing to change your credit reference file details to show that the balance has been paid and the date this happened.
- Check this has been done by asking the credit reference agencies for a copy of your credit file.
- You can expect to see your account showing as having been closed.
- Your balance should change to ‘zero’ to show that there is no more money due.
- Credit reference agencies will mark the account with a ‘P flag’ for ‘partial settlement’ which means that you have made a part-payment and not paid the balance in full.
- Factsheet
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We have a fact sheet on ‘Credit reference agencies, which may be of assistance to you. Phone us for a copy.
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How to work out offers of payment in full and final settlement
You may have a lump-sum that you need to divide up amongst several creditors. The usual way of doing this is to make ‘pro-rata’ offers. This means that each creditor gets a fair share of the money you have available. The creditor you owe the most to will get the biggest share of the money and the creditor you owe the least to will get the smallest share.
- Find out the exact balance you owe to each creditor.
- Use the formula to work out how much to offer to each creditor.
- Use the example at the end of the fact sheet to help you.
- Send the offers to all your creditors along with a table setting out how you have worked the offers out. It is helpful if creditors can see that they are all receiving an offer of a pro-rata settlement; then they know they are all being treated fairly.
- If some of the creditors refuse, then write to them again and ask them to reconsider. Tell them if any of your other creditors have accepted the offer and explain your circumstances again. If your creditors still refuse, phone us for advice to see what other options you may have.
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| Formula |
|---|
| Lump sum available × each debt |
| ÷ the total amount you owe to your creditors |
| = offer to the creditior |
| Example |
|---|
| You may have £10,000 owing to four creditors. You can raise a lump sum of £4,000. |
| You owe: |
|
| Use the formula |
| £4,000 (lump sum available) × £2,300 (debt to mastercard) |
| ÷ £10,000 (the total amount you owe to your creditors) |
| = £920 (offer to mastercard) |
| Your offer to Mastercard is £920. You then do the same calculation for each creditor, using each individual debt in the calculation. |
| Your offers to your creditors should look something like this: |
| Offers to creditors based on a full and final settlement of £4,000 | ||
|---|---|---|
| Creditor | Debt | Full and final settlement offer |
| Total | £10,000 | £4,000 |
| Mastercard | £2,300 | £920 |
| Catalogue | £1,200 | £480 |
| Loans | £4,500 | £1,800 |
| Bank | £2,000 | £800 |
- Remember
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Do not pay the lump sum to any creditor that does not agree your offer in writing.
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Sample letter E
This letter is designed to help you negotiate a full and final settlement offer with a creditor. This is a type of offer where you ask the creditor to accept part of the amount you owe and write off the rest.
(Your home address)
Date
To:
Without prejudice
Dear Sir/Madam
Account No:
I/we write with reference to the money which you are claiming on the above account.
I/we can confirm that I am/we are unable to offer to pay the money which I/we owe in full (add details of your circumstances and financial situation). However, I/we can raise £(put the amount which you can afford to pay) and I/we want to offer this as an ex-gratia payment in full and final settlement of the account. This offer is made on the clear understanding that, if accepted, neither you nor any associate company will take any other action to enforce or pursue this in debt in any way whatsoever and that I/we will be released from any liability.
I/we also request that, if accepted, you will make an entry on any credit reference agency file relating to the above account as having been paid and the account closed.
Payment can be made within (put the number of days or weeks within which you will pay) of receiving your written agreement of this offer and method of payment.
I/we look forward to receiving your reply.
Yours faithfully
(Your signature)
- Remember
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To keep a copy of all letters you send to your creditors.
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- Remember
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You can always phone us for advice about any difficulty you are having in dealing with your debts.
Freephone: 0808 808 4000 Website: www.nationaldebtline.co.uk
© Copyright National Debtline 1994 (updated March 2010).
Whilst we endeavour to keep the content of our website as up to date as possible, National Debtline cannot be held responsible for any changes in legislation or for developments in caselaw since this information was published.
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