How a Debt Settlement Agreement Can Get Your Money Back

While no one wants to take a loss, but losing 10% of a loan is better than losing all of it. Negotiating a Debt Settlement Agreement can benefit both the Creditor, the party loaning the money, and the Debtor, the party owing the money. When a debt has gone into default, the Debtor has demonstrated an inability and/or unwillingness to pay back the loan. At this point, the Creditor can take one of three actions: she can write off the unpaid loan as a bad debt expense, she can sell the loan to a debt collection agency, or she can negotiate a Debt Settlement Agreement.

What is a Debt Settlement Agreement?

A Debt Settlement Agreement is a negotiation between the Creditor and Debtor in which the Creditor agrees to accept a lesser price in order to settle the loan and the Debtor agrees to pay the lesser amount either immediately or within a defined period of time. As a result, the Debtor reduces negative effects on her credit health and repays the debt. The Creditor recovers some of the losses rather than not receiving anything. A Debt Settlement Agreement replaces the terms of the original loan agreement.

Writing an Agreement to Get Your Money Back

Here is key information you need to include in a Debt Settlement Agreement:

Identifying Information – Include information about the Debtor and the Creditor to clearly identify the parties in the contract.

Actual Loan Amount Outstanding – Include the monetary amount that is still owed to you from the original loan agreement.

Settlement Amount – This is the amount that you agree to accept in order to get some of your money back.

Non-Payment Provision – If the Debtor does not pay the amount specified in the Debt Settlement Agreement by a certain date, then the actual loan amount outstanding will be owed.

Governing Law – You should choose which state law will govern your agreement. The governing law in a debt settlement agreement is almost always the same as the governing law in the original loan agreement.

Here is a free template to get you started.