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What is a Debt Settlement Agreement?
A debt settlement agreement in the United States is an agreement between a lender and a borrower to handle a debt for less than the full amount owed. This type of agreement can be used to resolve a debt that the borrower cannot fully pay.
The terms of a debt settlement agreement can vary but typically include a lump sum payment from the borrower to the lender in exchange for a release from the debt obligation. Please note that debt settlement can harm credit scores, as settling a debt usually involves defaulting on the original loan agreement.
Debt Settlement Agreement Templates
Why Is a Debt Settlement Agreement Important?
In the debt settlement agreement, when a borrower cannot fully repay their debt obligations and wants to negotiate a resolution with their lender. A debt settlement agreement allows the borrower and lender to come to a mutually agreed-upon solution to the debt, which could result in the borrower paying less than the full amount owed.
This can be beneficial for the borrower, as it can reduce the debt they have to repay and help them get back on track with their finances. For the lender, a debt settlement agreement can resolve an outstanding debt and avoid the time and resources required to pursue collection through legal means. Overall, a debt settlement agreement can be a useful tool for both borrowers and lenders to resolve outstanding debt obligations.
What Are the Essentials of a Debt Settlement Agreement?
The agreement outlines the terms and conditions under which the debt will be paid, including the amount owed, payment schedule, interest rate, and consequences of default.
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Identification of Parties
The names and contact details of the creditor and the debtor are specified in the agreement to identify the parties involved.
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Debt Amount
The agreement outlines the total amount of debt owed, including the original debt, interest, and additional fees. This is important to ensure both parties clearly understand the debt being settled.
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Payment Terms
The payment schedule, the amount to be paid in each installment, and the due date of each payment are specified in the agreement. This outlines the expectations for the debtor to make timely payments and the creditor to receive payment.
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Interest Rate
The interest rate, if any, applied to the debt is specified in the agreement. This helps to determine the total amount the debtor will owe over the life of the debt settlement agreement.
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Collection Costs
Any collection costs, such as attorney's fees that may be added to the debt if the debtor fails to make payments as agreed are outlined in the agreement. This helps to ensure the creditor can recover additional costs if necessary.
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Default Clause
A default clause specifies what will happen if the debtor fails to make payments as outlined in the agreement. This may include collection proceedings or legal action.
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Settlement Amount
The agreed-upon settlement amount, typically lower than the original debt, is stated in the agreement. This is the amount the creditor agrees to accept as full payment of the debt in exchange for the debtor making regular payments as outlined in the agreement.
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Release of Liability
A release of liability provision specifies that the debtor will be released from any further liability for the debt once the settlement agreement is fully executed. This means that the debt is paid in full, and the debtor will not be responsible for any additional payments.
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Jurisdiction
The jurisdiction in which any disputes arising from the agreement will be resolved is specified. This helps ensure that any legal proceedings are handled in a convenient jurisdiction for both parties.
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Signatures
The signature lines for the creditor and the debtor indicate their agreement to the settlement terms. This indicates that both parties have agreed to the terms and conditions mentioned in the agreement.
How to Amend a Debt Settlement Agreement
A debt settlement agreement can be amended by mutual agreement between the debtor and the creditor. Both parties must sign a written document specifying the changes to amend the agreement. It is important to keep a copy of the amended agreement for future reference.
If there is a dispute regarding the terms of the amendment, it may be necessary to seek the assistance of a mediator or attorney. In some cases, a court may need to intervene to enforce the terms of the agreement.
It is important to note that the laws governing debt settlement agreements vary by state, so it is important to ask an attorney knowledgeable in the laws of the jurisdiction in which the agreement was entered into.
To ensure the validity of the amendment, it is important to follow the proper legal procedures and to have the agreement in writing. It is also advisable to keep detailed records of the original agreement's terms and the amendment's terms.
Key Terms Related to Debt Settlement Agreement
- Principal Amount: The total debt the borrower owes to the lender.
- Payment Plan: The schedule of payments agreed upon by the borrower and lender to repay the debt.
- Interest Rate: The percentage rate at which the debt accrues interest, if applicable.
- Forbearance: A temporary suspension of payments or reduction in payment amount agreed upon by the lender to help the borrower repay the debt.
- Default: A failure by the borrower to meet the terms of the debt settlement agreement, such as missing a payment or not adhering to the payment plan.
Conclusion
In conclusion, a debt settlement agreement is a legal agreement between a borrower and a lender to settle a debt for a minimum amount owed. This type of agreement is used when the borrower cannot fully repay their debt obligations and wants to negotiate a resolution with their lender.
The terms and conditions of a debt settlement agreement typically include the debt amount, payment schedule, interest rate, and consequences of default. It is important for both the borrower and lender to fully understand and agree to the terms outlined in the agreement before signing it. ContractsCounsel can help you draft the debt settlement agreement and guide you throughout the process.
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Meet some of our Debt Settlement Agreement Lawyers
Jason P.
Jason is a self-starting, go-getting lawyer who takes a pragmatic approach to helping his clients. He co-founded Fortify Law because he was not satisfied with the traditional approach to providing legal services. He firmly believes that legal costs should be predictable, transparent and value-driven. Jason’s entrepreneurial mindset enables him to better understand his clients’ needs. His first taste of entrepreneurship came from an early age when he helped manage his family’s small free range cattle farm. Every morning, before school, he would deliver hay to a herd of 50 hungry cows. In addition, he was responsible for sweeping "the shop" at his parent's 40-employee HVAC business. Before becoming a lawyer, he clerked at the Lewis & Clark Small Business Legal Clinic where he handled a diverse range of legal issues including establishing new businesses, registering trademarks, and drafting contracts. He also spent time working with the in-house team at adidas® where, among other things, he reviewed and negotiated complex agreements and created training materials for employees. He also previously worked with Meriwether Group, a Portland-based business consulting firm focused on accelerating the growth of disruptive consumer brands and facilitating founder exits. These experiences have enabled Jason to not only understand the unique legal hurdles that can threaten a business, but also help position them for growth. Jason's practice focuses on Business and Intellectual Property Law, including: -Reviewing and negotiating contracts -Resolving internal corporate disputes -Creating employment and HR policies -Registering and protecting intellectual property -Forming new businesses and subsidiaries -Facilitating Business mergers, acquisitions, and exit strategies -Conducting international business transactions In his free time, Jason is an adventure junkie and gear-head. He especially enjoys backpacking, kayaking, and snowboarding. He is also a technology enthusiast, craft beer connoisseur, and avid soccer player.
Karl D. S.
Karl D. Shehu, has a multidisciplinary practice encompassing small business law, estate and legacy planning, real estate law, and litigation. Attorney Shehu has assisted families, physicians, professionals, and people of faith provide for their loved ones by crafting individualized estate and legacy plans. Protecting families and safeguarding families is his passion. Attorney Shehu routinely represents lenders, buyers, sellers, and businesses in real estate transactions, researching and resolving title defects, escrowing funds, and drafting lending documents. To date, Attorney Shehu has closed a real estate deal in every town in Connecticut. As a litigator, Attorney Shehu has proven willing to engage in contentious court battles to obtain results for his clients. While practicing at DLA Piper, LLP, in Boston, Attorney Shehu represented the world’s largest pharmaceutical companies in multidistrict litigations filed throughout the United States. He has been a passionate advocate for immigrants and the seriously injured, frequently advising against lowball settlement offers. He is willing to try every case to verdict, and he meticulously prepares every case for trial. Attorney Shehu began his legal career as a consumer lawyer, utilizing fee-shifting statutes to force unscrupulous businesses to pay the legal fees of aggrieved consumers. For example, in Access Therapies v. Mendoza, 1:13-cv-01317 (S.D. Ind. 2014), Attorney Shehu utilized unique interpretations of the Trafficking Victims Protection Act, Truth-in-Lending Act, and Racketeer Influenced and Corrupt Organizations Act (RICO) to obtain a favorable result for his immigrant client. Attorney Shehu is a Waterbury, Connecticut native. He attended Our Lady of Mount Carmel grammar school, The Loomis Chaffee School, and Chase Collegiate School before earning degrees from Boston College, the University of Oxford’s Said Business School in England, and Pepperdine University School of Law. At Oxford, Karl was voted president of his class. Outside of his law practice, Attorney Shehu has worked to improve the world around him by participating in numerous charitable endeavors. He is a former candidate for the Connecticut Senate and a parishioner of St. Patrick Parish and Oratory in Waterbury. In addition, Attorney Shehu has written extensively on the Twenty-fifth Amendment and law firm retention by multinational firms.
Daehoon P.
Advised startups and established corporations on a wide range of commercial and corporate matters, including VC funding, technology law, and M&A. Commercial and Corporate Matters • Advised companies on commercial and corporate matters and drafted corporate documents and commercial agreements—including but not limited to —Convertible Note, SAFE, Promissory Note, Terms and Conditions, SaaS Agreement, Employment Agreement, Contractor Agreement, Joint Venture Agreement, Stock Purchase Agreement, Asset Purchase Agreement, Shareholders Agreement, Partnership Agreement, Franchise Agreement, License Agreement, and Financing Agreement. • Drafted and revised internal regulations of joint venture companies (board of directors, employment, office organization, discretional duty, internal control, accounting, fund management, etc.) • Advised JVs on corporate structuring and other legal matters • Advised startups on VC funding Employment Matters • Drafted a wide range of employment agreements, including dental associate agreements, physician employment agreements, startup employment agreements, and executive employment agreements. • Advised clients on complex employment law matters and drafted employment agreements, dispute settlement agreements, and severance agreements. General Counsel • As outside general counsel, I advised startups on ICOs, securities law, business licenses, regulatory compliance, and other commercial and corporate matters. • Drafted or analyzed coin or token sale agreements for global ICOs. • Assisted clients with corporate formations, including filing incorporation documents and foreign corporation registrations, drafting operating and partnership agreements, and creating articles of incorporation and bylaws. Dispute Resolution • Conducted legal research, and document review, and drafted pleadings, motions, and other trial documents. • Advised the client on strategic approaches to discovery proceedings and settlement negotiation. • Advised clients on employment dispute settlements.
Steven S.
Steven Stark has more than 35 years of experience in business and commercial law representing start-ups as well as large and small companies spanning a wide variety of industries. Steven has provided winning strategies, valuable advice, and highly effective counsel on legal issues in the areas of Business Entity Formation and Organization, Drafting Key Business Contracts, Trademark and Copyright Registration, Independent Contractor Relationships, and Website Compliance, including Terms and Privacy Policies. Steven has also served as General Counsel for companies providing software development, financial services, digital marketing, and eCommerce platforms. Steven’s tactical business and client focused approach to drafting contracts, polices and corporate documents results in favorable outcomes at a fraction of the typical legal cost to his clients. Steven received his Juris Doctor degree at New York Law School and his Bachelor of Business Administration degree at Hofstra University.
Rhea d.
Rhea de Aenlle is a business-savvy attorney with extensive experience in Privacy & Data Security (CIPP/US, CIPP/E), GDPR, CCPA, HIPAA, FERPA, Intellectual Property, and Commercial Contracts. She has over 25 years of legal experience as an in-house counsel, AM Law 100 firm associate, and a solo practice attorney. Rhea works with start-up and midsize technology companies.
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Benjamin S.
Benjamin Snipes (JD/MBA/LLM) has 20 years of experience advising clients and drafting contracts in business and commercial matters.
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Sonya A.
Experienced Attorney with a demonstrated history of working in the law practice industry. Skilled in Preparation of Wills, Trial Practice, Estate Administration, Trusts, and Estate Planning. Strong legal professional with a Juris Doctorate focused in Law from Howard University School of Law.
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Debt Settlement Agreement
Florida
Debt settlement agreement due diligence?
I recently entered into a debt settlement agreement with a company and I am concerned about the due diligence that was conducted by the company. I am worried that I may have been taken advantage of and I would like to know if the agreement is legally binding. I would also like to know what options I have if the agreement turns out to be invalid.
Diane D.
The only way to tell if your agreement is legally binding and what options you have is to have an attorney review it. However, if all the parties have signed the agreement, it is most likely legal.
Debt Collection
Debt Settlement Agreement
Florida
Creditor rights in debt settlement agreements?
I recently entered into a debt settlement agreement with my creditor, but I am worried that my rights may be violated during the process. I am concerned that the creditor may not abide by the terms of the agreement, or that they may not provide me with the full protections that I am entitled to under the law. I am hoping to get some clarity on my rights as a debtor in this situation so that I can protect myself.
Diane D.
Without seeing the settlement agreement, there is no way to tell if your rights, or what you believe to be your rights, are covered. Also, if they don't abide by the contract, you can take them to court.
Debt Settlement
Debt Settlement Agreement
Florida
What is a debt settlement agreement?
I am currently in a difficult financial situation and have been struggling to pay off my debt. I have been approached by a debt collection agency to enter into a debt settlement agreement, but I am unsure what this entails and what rights I have. Therefore, I would like to understand the details of a debt settlement agreement before I make any decisions.
Erik W.
A debt settlement agreement allows you to pay a portion of the debt while the rest of the debt is charged off. Debt Collection Agencies typically want you to pay the amount agreed upon within 3 or 4 payments.
Bankruptcy
Debt Settlement Agreement
New York
Debt settlement agreement vs. bankruptcy?
I am currently in a difficult financial situation and am looking at my options to get out of debt. I am considering both a debt settlement agreement and filing for bankruptcy, but am not sure which option is best for my situation. I am hoping to get advice from a lawyer regarding the pros and cons of each option, so that I can make an informed decision.
Jeffrey Z.
Bankruptcy is a very large part of my practice. I have had many clients that have attempted to use a debt resolution service without success. Unfortunately, they often pay a substantial amount of money to the service, their debts do not get resolved, they end up in bankruptcy anyway, and they do not get their money back. Aside from the difficulties in successfully completing a debt settlement agreement, there is also a tax issue. Forgiven debt is considered taxable income. You will receive a 1099 from any creditor that accepted a reduced amount to satisfy a debt. The result may be an income tax liability that you were not expecting. Debts that are discharged in bankruptcy are not counted as income.
Financial
Debt Settlement Agreement
Washington
When to use a debt settlement agreement?
I have recently been struggling to pay off my credit card debt, and I'm trying to find the best way to settle this debt. I am considering a debt settlement agreement, but I'm not sure when it is appropriate to use one. I understand that a debt settlement agreement is a legally binding agreement between a creditor and a debtor, and I want to know if this is a viable option for my situation.
Merry A.
I only just saw your question - sorry you have been waiting since July 30, 2023! Whether a settlement agreement is your best choice is very fact-specific. In many situations, it's a good option if you can negotiate a far lower pay-off amount, but in some situations bankruptcy and a "clean slate" is the best option. Many legal servies/legal aid offices may offer free debt assistance -if it's not too late, I suggest that you contact such an office.
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Location: Nebraska
Turnaround: A week
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Doc Type: Debt Settlement Agreement
Page Count: 3
Number of Bids: 2
Bid Range: $300 - $400
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Location: Arkansas
Turnaround: Over a week
Service: Drafting
Doc Type: Debt Settlement Agreement
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