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Full & Final Settlement

A Full and Final Settlement is an agreement that you make with your creditor to clear your debts

As part of a Full & Final Settlement, creditors will usually agree to accept a lower amount than the whole debt to clear the debt in ‘full’ – or to stop pursuing legal action to recover the remaining debt, making it a ‘final’ settlement.

However, the creditors are under no obligation to accept the offer and will only do so if it is reasonable.

What is a reasonable Full & Final Settlement Offer?

There is no set figure that constitutes a reasonable offer because it entirely depends on your financial situation, and the creditor. Very low offers may be rejected but if you can offer a significant portion of the money you owe, it is more likely to be considered.

An important factor in increasing the likelihood of the settlement being accepted is that you offer equal amounts to all creditors. For example, if you owe a total of £10,000 to multiple creditors and you receive a lump sum of £5,000, you should offer each creditor 50% of what you owe them.

When you offer a Full & Final Settlement, you are offering a lump sum. The creditor benefits because they can recoup a portion of the debt immediately instead of waiting for monthly payments. You benefit because you pay less than the full amount and you can avoid interest payments.

Removing settled Debts from a Credit Report

When you agree to a Full and Final Settlement with your creditors, your outstanding debt may be marked as ‘partially settled’ on your credit report. This shows that you didn’t pay back the full amount and you cleared them for less than the total you were due to repay. Future creditors will be able to see this and it can have an impact on your ability to get credit. This is something you should consider before deciding whether a Full and Final Settlement is the right option for you.

However, the partially settled debt only remains on your credit report for six years. Once the account is removed, it will no longer have a negative impact on your credit score.

How to make a Full & Final Settlement Offer

Before submitting a proposal, you must keep in mind that some or all of your creditors may decide not to accept it. In this case, your debt repayments remain the same and creditors can still take legal action if you don’t pay them. So, you may need to consider alternative debt management solutions like an Individual Voluntary Agreement or Bankruptcy if this is the case.

There are certain recommended steps to follow when submitting your proposal and paying your settlement: 

  • Calculate your repayment offer – This must be submitted to your creditors.
  • Request confirmation in writing – Make sure your creditors have confirmed their acceptance of your offer before you make any deposits.
  • Archive letters from creditors – Keep all correspondence related to the settlement offer in case you need them again in the future (it is recommended you keep these letters for at least six years after you have settled the debt).
  • Be prepared to negotiate with creditors – Creditors will not necessarily accept your proposal, so be prepared to negotiate with them separately. You should also decide what you will do if none of them accept it.
  • Make payments on time – If the settlement is agreed, it is vital that you make your payments in full and on time to each creditor.
  • Keep proof of payments – Keep all proof of payments on file. This will protect you in the future if your creditors attempt to collect the remaining debt.

Advantages of a Full & Final Settlement

Start Over
A Full & Final Settlement is a way to clear your debts and start over. You pay them off in one lump sum. This gives you an opportunity to improve your finances and start improving your credit rating again.
More Manageable Repayments
Even if you are only able to agree to a Full & Final Settlement with one of your creditors, this could still significantly reduce your debt levels and make other debt repayments more manageable.

*You will remain liable to pay certain debts – in particular: Student loans, Fines, Debts arising from family proceedings, Budgeting loans and crisis loans owed to the Social Fund.

Disadvantages of a Full & Final Settlement

Finding Funds

The biggest difficulty is that you have to find the funds to pay a lump sum to your creditors. Often, people use this option if they have received a windfall such as an inheritance, sold assets like their house, been awarded compensation, or received a redundancy payment. If you don’t have a lump sum available to make a reasonable offer, this option isn’t available to you.

Credit File May Be Affected

Once a Full & Final settlement is completed, the debt is marked as ‘partially settled’ this can affect your credit score and make it more difficult to borrow money in the future.

Frequently Asked Questions

  • What Percentage Should I Offer For A Full & Final Settlement?

    You should offer to pay each creditor the same percentage of the debt back, so creditors may receive different lump sums depending upon the total amount that you owe to each one. Creditors will expect to see that they are being treated equally. 

  • Can I Offer A Full & Final Settlement To Only One Of My Creditors?

    There are no limits on how many of your creditors you can offer a full and final settlement proposal to. As long as you format your proposal correctly and offer to repay a reasonable amount, then there is no reason that a creditor should not consider your settlement offer to clear your debts.

  • What Happens If I Propose A Full And Final Settlement And Then My Windfall Is Not Received?

    If you do not receive your windfall, then you have the following options available to you:

    1. If you have some funds available then you could re-negotiate with some or all of your creditors
    2. You can continue to pay your debts back in line with the contractual agreements
    3. If you are struggling to pay your monthly repayments then you could consider an alternative debt solution such as a Debt Management Plan, Debt Relief Order (DRO), an Individual Voluntary Arrangement (IVA) or Bankruptcy.