What is a ‘full and final’ settlement offer?
If you’re fortunate enough to be in a situation where you could repay your IVA in one payment you may want to consider a full and final settlement offer.
What is a ‘full and final’ settlement offer?
A full and final settlement offer, is also known as a Debt Settlement Offer (DSO). It is a solution for your debts that involves offering your creditors one large, lump sum payment to pay off your remaining debts, instead of continuing with your, usually unaffordable, situation.
Using this method, you may manage to get your creditors to agree to write off some of your debt upon receipt of a significant enough amount of your debts.
For example, you may be struggling to pay an amount of £150 a month for a remaining debt of £4,750 when you receive an inheritance of £3,000. You would then write a letter to your creditor explaining your circumstances and asking them to accept the £3,000 as the full payment to satisfy your debt.
Are creditors likely to accept a full and final settlement offer?
It might seem like creditors won’t accept a cut-price offer because it looks like they are losing money, but if you have been regularly missing payments, creditors will often prefer to receive a guaranteed payment than risk you becoming insolvent and being unable to pay them anything.
You can also use DSOs to settle multiple debts. For example, if you have 3 debts which are £500, £2,250 and £4,000, you might be able to use a windfall of £4,000 to pay off the total £6,750.
You must send letters to each of your creditors fully explaining your situation, and you must offer them a proportional amount of the available funds to settle your debts. This would mean that you offer £296.30, £1,333.33, and £2,370.37 to each creditor respectively.
Advantages of a full and final settlement
- If accepted, you can have your debts solved very quickly. This makes it easier and faster to work towards being financially healthy and planning for your financial future.
- As it is not an insolvency solution, you are not entered onto any insolvency registers
Disadvantages of a full and final settlement
- Your creditors may not accept, particularly if they would make a substantial loss on your account
- Very few people come across lump-sums that they are able to use to satisfy their debts. It is important that you don’t sacrifice money that you need to survive to create a ‘lump sum’.
- Your account is often labelled ‘partially settled’ on your credit file for six years which lets future lenders know that you did not pay the full amount of your debt. This could affect your ability to take out credit, such as if you want to buy a house.
Useful tips for making a full and final settlement offer
Get everything in writing
You must get everything, such as your offer and their acceptance, in writing, otherwise your creditors might change their minds and you will have no proof that they agreed to your proposal.
Consider hiring a solicitor
You may want a formal agreement to be written up by a solicitor if the amount is particularly big.
Use a third party
Once you have written acceptance of the agreement, it helps your agreement to become more legally binding if a third party transfers the money to the creditor.
Update your credit reference file
You might want to make sure your credit reference file has been updated. You can ask your creditors for this, and your account should be ‘closed’ and your balance at ‘zero’
Parkfield Insolvency will not charge you a fee for initial information and signposting. If you were to proceed and implement a recommended debt solution where fees are applicable, full details will be provided before setting up. Parkfield Insolvency proposes and administers Individual Voluntary Arrangements (IVAs). Advice is provided on the basis that there is reasonable contemplation of an insolvency appointment, once it is apparent that an IVA is likely to be the most appropriate debt solution. The debt solutions offered by Parkfield Insolvency Limited only apply to residents of England, and Wales.
Parkfield Insolvency is a trading style of Parkfield Insolvency Limited, Company Number 14371483, registered in England and Wales, at Dalton House, Cross Street, Sale, M33 7AR.
Peter Jackson is authorised by the Insolvency Practitioners Association to act as a Licensed Insolvency Practitioner.
To qualify for an IVA with Parkfield Insolvency, you must have a minimum of £6,000 of qualifying unsecured debt owed to two or more creditors
There is potentially a debt write off in some IVAs. However, the amount of debt written off differs for each customer depending upon their individual financial circumstances and is subject to the approval of their creditors.
Data Protection Act Registration Number – ZB399874. To find out more about managing your money and getting free advice, visit Money Helper, an independent service set up to help people manage their money.
