Full & Final Settlement offer - what is it?

6 June 2008

If you have an overdue debt that you do not think you will be able to repay in full, some creditors may accept a ‘full & final settlement offer’. This is an offer to your creditor(s) of a lump sum in order to settle your debts. This lump sum is unlikely to be for the full amount: if you’re in financial difficulties and your creditors aren’t sure they’d ever get the full sum, they may well prefer to get some of it now than hope to get all of it in the future.

There are a number of reasons why your creditors may accept a full & final settlement offer:

• It avoids (further) court costs – and taking you to court would not guarantee them repayment anyway
• A lump sum may be more valuable to them than smaller payments over a longer period
• Depending on your circumstances, creditors may accept that you are unable to pay any more than this lump sum

How do I make a full & final settlement offer?
To make an offer, you should send a formal letter to your creditor(s) explaining your financial difficulties and the offer you wish to make. This letter should include:

• The reference/account number for the debt you are looking to settle
• A paragraph explaining your financial situation (e.g. your income vs. expenditure) and the offer you are willing to make, as well as why they should accept your offer rather than an alternative
• Details of when you plan to make the final payment
• A request that if this offer is accepted, the debt will be considered settled and the creditor will no longer pursue any payment
• A request for a response in writing (for your records)

Remember: It is vital that you keep a copy of any letters you send, for future reference. This way you’ll have a record of all your progress – not just for you, but in case creditors do not receive your letters.

How much should I pay to each creditor?
If you only have one creditor to pay, the full lump sum should go to them. However, if you have a number of creditors to pay, you will need to divide the lump sum fairly between creditors. The best way to calculate this is ‘pro rata’ (as an equal percentage of each debt).

You can work this out for each creditor using the following formula:

(lump sum available times debt to that creditor) divided by your total debt
= YOUR OFFER to that creditor

Once you have calculated all of your offers, add them together – this should equal your lump sum amount.

Remember: do not send ANY money until offers have been accepted in writing. Keep all confirmation letters for future reference.

You should also request a credit report from a Credit Reference Agency once the debt is settled. If your report does not state that the debt has been settled, it is important to get this updated, or you may find it harder to get credit in the future.

Before making a full & final settlement offer, you should always speak to an expert debt adviser. They will advise you on the best course of action to take and may be able to suggest a debt solution more suited to your situation.

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