A debt settlement agreement is a contract to more effectively manage debt between a borrower and a lender.
- Agreeing to take less than the balance owed on a loan in exchange for a guarantee of regular payment
- Negotiating down debt balances with existing lenders
When a person or business finds themselves in debt, there are several options available to them. Excessive debt can be dealt with through bankruptcy proceedings, but often parties to a financial agreement would prefer to avoid the hassles of filing a case in federal court. Often, borrowers and lenders would both prefer to compromise than bear the expense of a trial. In these circumstances, debt settlement agreements can be very useful for resolving financial issues.
A debt settlement is not to be confused with debt consolidation. Under a debt settlement agreement, a lender agrees to reduce the total amount owed by the borrower in exchange for less risky payment terms. Once the borrower has paid this reduced amount, the loan will be regarded as paid-in-full. Debt consolidation, on the other hand, involves a third party that steps in to manage debt between a borrower and his original lenders.
Because debt settlement is a private agreement between the borrower and the creditor, the form and content of the debt settlement agreement is critical. The debt settlement agreement will define the new amount due, the borrower’s revised payment schedule, and the creditor’s rights and liabilities in the event of default. The specific terms and conditions of the debt settlement agreement can be customized to fit your needs. Use this helpful interactive form to create a debt settlement agreement that works for your specific circumstances.