Uploaded on Sep 19, 2022
PPT on the debt settlement agreement
Debt Settlement Agreement Overview
DEBT SETTLEMENT AGREEMENT: OVERVIEW Debt settlement is where a creditor gives his/her consent to forego a certain percentage of the outstanding amount. He agrees to settle at a reduced final figure of the total amount due. The Debt Settlement Agreement is a written agreement between a debtor and creditor where the debtor agrees to pay the creditor the outstanding debt due to him. INTRODUCTION Source: cleartax.in For the debtor, the avoidance of court trials, for the most part For the creditor, a specified portion of the amount back is guaranteed The document, in itself, serves as evidence as and when needed MERITS OF A DEBT SETTLEMENT AGREEMENT Source: cleartax.in Unfavourable terms in the Debt Settlement Agreement Late fees or interest may be inserted in the agreement It can lead to a negative impact on credit score DEMERITS OF A DEBT SETTLEMENT AGREEMENT Source: cleartax.in A debt settlement is entered into by a borrower when they lack the capacity to pay the outstanding amount of debt to their creditors. Instead of declaring bankruptcy, the borrower may attempt to reach a debt settlement with their creditors. UNDERSTANDING A DEBT SETTLEMENT Source: corporatefinanceinstitute.com The borrower explains their financial situation to a debt settlement company. During the process, the debt settlement company would advise the borrower to stop making payments to their creditors and instead make payments to the debt settlement company PROCESS FOR A DEBT SETTLEMENT Source: corporatefinanceinstitute.com A debt settlement would lower the amount of debt outstanding. In the example above, although the borrower owed $30,000 in debt, the borrower only ended up paying $24,000. LOWERING THE AMOUNT OF DEBT OUTSTANDING Source: corporatefinanceinstitute.com The debt settlement company would put the payments made by the borrower into a savings account. Once the savings account’s reached a certain threshold, the debt settlement company would engage with the borrower’s creditors to negotiate a debt settlement. PROCESS FOR A DEBT SETTLEMENT CONT. Source: corporatefinanceinstitute.com A debt settlement allows the borrower to avoid bankruptcy. Depending on the country, consumer bankruptcy can last up to ten years – significantly impacting the credit score of a borrower. AVOIDING BANKRUPTCY Source: corporatefinanceinstitute.com There is no guarantee that the debt settlement company would be able to reach a successful settlement with the borrower’s creditors. In fact, according to the Credit Counselling Society, the success rate of for-profit debt settlement companies is less than 10%. IMPLICATIONS OF A DEBT SETTLEMENT Source: corporatefinanceinstitute.com THANK YOU
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