Full and final settlement
Full and Final settlement is where a debtor will offer their creditors a lump sum to repay a percentage of the debt owed on an account. If the creditor accepts the lump sum, they will then agree to write of any outstanding debt remaining on the account.
For example, if you owe a creditor £5,000 and you are in a position to offer £3,500 as a full and final settlement, the creditor may accept this and write off the outstanding £1,500.
Generally, to offer a reduced settlement figure, you will have already either been making reduced monthly payments on your account or you will have been in arrears for a number of months.
If you have been paying your agreed monthly repayments, it is highly unlikely your creditors will be willing to accept a reduced settlement figure until you are in default.
If you are in a position where you can offer reduced full and final settlement on your account, it is important to get the agreement from your creditors in writing before you send any money. Alternatively you can offer the lump sum through an Individual Voluntary Agreement (‘IVA’) to ensure that the agreement is legally binding.
If you have more than one creditor that you owe money to, you will need to work out a fair percentage to offer each creditor on a pro-rata basis.
Example:
You owe £10,000 to 4 creditors and you have £6,000 to offer as full and final settlement.
Creditor 1: £5,000
Creditor 2: £3,000
Creditor 3: £1,500
Creditor 4: £500
Total debts £10,000
To work out a fair percentage for each creditor, you will need to multiply the full lump sum you have by how much you owe each individual creditor and divide that by how much you owe to all creditors.
Creditor 1
£6,000 (your lump sum) x £5,000 (How much you owe to creditor 1) ÷ £10,000 (Total outstanding debt to all creditors) = £3,000 (The amount you offer to creditor 1).
Creditor 2
£6,000 (your lump sum) x £3,000 (How much you owe to creditor 2) ÷ £10,000 (Total outstanding debt to all creditors) = £1,800 (The amount you offer tocreditor 2).
Creditor 3
£6,000 (your lump sum) x £1,500 (How much you owe to creditor 3) ÷ £10,000 (Total outstanding debt to all creditors) = £900 (The amount you offer to creditor 3).
Creditor 4
£6,000 (your lump sum) x £500 (How much you owe to creditor 4) ÷ £10,000 (Total outstanding debt to all creditors) = £300 (The amount you offer to creditor 4).
This ensures all creditors are receiving an equal share of the lump sum that is available. You will also need to show this to your creditors so they can see that you have worked out payment offers fairly.
If you are not happy about making full and final settlement offers to your creditors yourself, you can appoint a third party to do this on your behalf.
Call our specialist debt team on 08000 915 004 to find out how we could help you.