Full & final settlement
A Full & Final Settlement will only be a suitable option if you have or are about to receive a sizeable amount of money, or if you have assets (for example equity in your house, investments or items of value such as antiques or works of art etc) that you are prepared to sell to raise large enough sums to offer to your creditors.
Raising large sums to make this option viable could come from:
- Savings or investments.
- Equity withdrawal from your house, through re-mortgage or sale.
- Sale of high value assets.
- Funds from family or friends.
- Redundancy.
- Withdrawal of cash from pensions (where this is possible).
Whichever route you choose, it is important that you seek expert, independent financial advice before you decide to sell any investments, endowment policies or withdraw cash from pension schemes. Furthermore, you should ensure that you only sell items or use funds that you will not need at some later time.
Creditors can be receptive to an offer for full and final settlement of a debt if they feel the offer is reasonable relative to the size of debt, realistic in view of your financial situation, and better than they feel they could achieve from alternative costly recovery action.
Advantages of paying off your debts early
- If creditors accept your offer, you will pay less than you may otherwise have to over an extended period of time.
- Assuming your creditors accept your offer in writing, you can have an immediate fresh start without the hassle of further contact from the creditors.
- From a creditor perspective, this offers a potentially better return to them than bankruptcy where legal fees and other costs could account for a large proportion of the lump sum available.
- Potentially this could help to improve your credit rating through the clearing of debt, though this is subject to the creditors advising Credit Reference Agencies (CRAs) that the debt has been settled; be aware however that some creditors do not advise the CRAs that the debt has been paid in full.
Disadvantages of paying off your debts
- Your creditors must agree to your proposal. Your offer will only be accepted when your creditors have agreed and you should be aware that they are not legally bound to do so.
- Creditors may not be prepared to accept lower sums than the outstanding debt.
- If creditors do accept your offer, you must obtain their agreement in writing, as there may always be the chance that they come back to you for more at a later time.
- Knowing that you have access to a lump sum, the creditor could refuse to accept your offer and then take recovery action to secure repayment of all of the debt.
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