Debt settlement and your legal rights

These days an increasing number of creditors are accepting debt settlement as a quicker, easier way of recovering money owed to them.  

What is debt settlement?

Debt settlement - also referred to as credit settlement or debt negotiation - typically refers to the process of agreeing to pay a creditor less than you owe.

While clearly not as desirable to creditors as receiving the whole payment, they may agree to settle for less when the alternative is getting nothing.

While obtaining a debt settlement is a huge mark against your credit score and comes with a host of associated fees and taxes, it could help you live more comfortably.

It does this by reducing the size of each instalment and relieving the pressure from threatening letters and phone calls – not to mention a shrinking bank balance.

I want to get a debt settlement - how should I deal with my creditors?

If you're in debt, the first thing to remember is that you should keep in regular contact with the people you owe money to. While you may be afraid to contact them, avoiding it may not be a wise idea.

If your creditors aren’t aware you're having financial problems, they may assume you don't want to pay.

With this in mind, they could start taking – or at least threaten to take – legal action against you. This could involve taking you to court or sending bailiffs to your home to take away your belongings.

It's almost never too late to start talking to those to whom you owe money. In fact, most creditors will appreciate it if you contact them.

To be able to get a debt settlement in place, you’ll need to:

• Work out how much money you owe and who your creditors are.
• Figure out which are the most urgent debts and whether you have enough money to pay them off. These are called ‘priority debts’ because the consequences of not paying them off are more serious eg. rent, mortgage, council tax.
• Contact priority creditors by phone to sort things out quickly. You should follow up the call with a letter, confirming the details of the phone conversation. Keep copies of any letters you send to your priority creditors.
• Sort through less urgent debts. These are known as non-priority debts and include overdrafts and credit card bills.
• Once you've worked out how much you can afford to pay your non-priority creditors, you will need to write to each of them.

You can get help with all of the above from the kinds of debt recovery solicitors First4Lawyers can match you with.

If you can’t make payment straight away, you may try asking for more time while you seek advice and work out your budget.

They may not agree to wait. As a result, you might need to offer something on top of your usual monthly payment until you get the advice you require.

Send a copy of your personal budget to your non-priority creditors. This should include the ways in which you propose to pay them back, and how much you intend to pay back in total.

You could also include a list of your other creditors to show them how you’ve worked out your offers.

What if my creditors won't accept my offer?

You may find that your creditors won't accept your offers at first, even if you made your offers with the help of debt recovery solicitors.

If your creditors don’t respond, it could be a good idea to seek advice either from your solicitor or a finance professional.

If a creditor queries your budget and suggests that you can afford to pay more than you're offering, you will need to provide proof of your income and expenditure. It may also be wise to provide a short letter outlining the reasons why you believe that your offer is reasonable.

If your creditors begin acting aggressively, or start harassing you, they may be committing a criminal offence.

Through all stages of the process you should consider speaking to a knowledgeable third party, such as a solicitor, before you act.

I need debt settlement advice - what do I do next?

If you want help to resolve any debt issues, please call First4Lawyers.

Our specialist debt settlement lawyers can help you put an appropriate action plan in place and help you negotiate debt settlements.

As part of the process, we may be able to contact your creditors on your behalf or even help stop a court action against you. Whatever the reason you need us, we are here to help resolve your debt issues once and for all.

Contact us for a free and confidential chat.