Debt Settlement Agreement Overview


Chrisnoblet3

Uploaded on Sep 19, 2022

PPT on the debt settlement agreement

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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