Free Debt Settlement Agreement Templates (Word | PDF)

When a debtor is unable to pay the full balance of a debt that is owed, they can often come to an agreement with the creditor to pay a percentage of the debt in order to settle it or to arrange smaller monthly repayments. This is done using a Debt Settlement Agreement.

What is a Debt Settlement Agreement

A Debt Settlement Agreement is a contract that allows the debtor and creditor to negotiate an agreement for paying off or re-negotiating a debt.

In some instances, the debtor and creditor will agree to smaller repayments until the debt is paid in full. In other cases, they will arrange to pay a percentage of the debt in order to settle it, which lets the creditor recoup some of the losses of the debt. The agreement can also be used by the debtor to propose an amount and a way to resolve the debt., usually when the debtor is unable to afford to pay off the full amount. The debtor will offer a lower amount immediately, usually 50 to 70% of the amount owed, to settle and close out the debt. The debt can then be removed from the debtor’s credit report.

Free Templates

Free Debt Settlement Agreement Template 01 for Word
Editable Debt Settlement Agreement Template 02 for Word
Printable Debt Settlement Agreement Template 03 for Word
Free Debt Settlement Agreement Template 04 for Word

    How to Write a Debt Settlement Agreement

    Whether you are offering to make smaller repayments or offering a percentage of the debt to be paid, there are specific things that should be included in the agreement:

    The first section should include:

    • Creditors details (The party that holds the debt) – this should include the creditor’s legal name and their full address.
    • Debtors details (the party owing the debt) – this should include the full name and address of the person responsible for the debt.
    • Effective date – this gives the date that the agreed-upon terms will become active.

    The second section will outline the details of the debt and should include:

    • Present debt – this gives the amount that is still owed to the creditor by the debtor.
    • Settlement Debt – this is the adjusted amount of the debt that the debtor is offering to pay in order for the creditor to accept and settle the debt.
    • Payment – this should outline how and when the debt will be paid, for example, being paid by check, cash, or bank transfer. A date that the payment must be made should also be included here.
    • Governing Law – the state in which this debt is being enforced should be included here.


    All Debt Settlement Agreements are governed by laws specific to each state and may require things such as written acknowledgment of receiving the agreement by the creditor.

    The last section of the agreement is where both parties will sign the document in order to make it a binding contract. Once both parties agree to the terms of the agreement, they must sign and date the document. There should be a space for the debtor to sign and date, as well as the creditor. Both must also print their names under their signatures. If an authorized individual is signing on behalf of the creditor company, they will need to print their name and the legal name of the company.

    Things to Be Aware of

    There are some things that you need to be aware of when creating your agreement:

    For Debtors

    • These agreements are used for unsecured debts. If a debt is secured, the lender or creditor has the right to take the property that the loan was secured against in lieu of monetary payment.
    • A creditor must report to the IRS any debt forgiven of $600 or more, which means your debt can result in a tax liability.
    • Creditors can report a debt settlement to the credit bureau, which can have a big negative impact on your credit score if you have a good score. However, if you have a bad credit score already, it can have a lesser impact. You should consider whether the choice to settle a debt in this way is better for your situation or not.

    For Creditors

    • While accepting a Debt Settlement Agreement means the creditor will recoup some of the debt, it also means the creditor is no longer able to go back to obtain the full amount owed.
    • It’s important to be sure all relevant points regarding the agreement are included in the document. Some agreements will be fairly simple and straightforward, whereas others can be a bit more complex. It’s better not to assume that certain expectations or terms have been agreed upon, so be sure to include everything regarding those expectations and terms from both parties.
    • In some instances, a witness or notary may be required for the signing of the agreement. This can be helpful should one party challenge the agreement at a later date. It’s important to make sure two copies have been signed, one for each party.

    Frequently Asked Questions

    Can I Get Out of a Debt Settlement Agreement?

    There are some ways in which you can do this: Go to the creditor for help, use a third party debt assistance organization to help handle the debt, or file for bankruptcy, which will give some legal protection.

    What Percentage Should I Offer To Settle A Debt?

    Creditors will try to get between 50 to 70% of the debt owed. You30% of the total debt.

    Which Is Better? Paying A Debt In Full Or Settling?

    Paying off a debt in full is always better. Settlements that aren’t for the full amount will be put on your credit record and can impact your credit score.

    About This Article

    Bryan Brown
    Authored by:
    Licensed Attorney - Asset Protection, Business Formation, Contract Drafting, Real Estate, Securities, Tax
    Bryan Brown is a seasoned attorney with a particular passion for empowering small businesses and startups. His comprehensive suite of services covers crucial areas like Asset Protection, enabling businesses to shield their pivotal assets, and Business Formation, guiding new enterprises through the foundational stages. Bryan's prowess in Contract Drafting ensures that businesses operate on robust agreements, while his insights into Real Estate, Securities, and Tax matters provide a holistic legal framework for clients. With a reputation for thoroughness and dedication, Bryan Brown stands as an invaluable asset for any business aiming to thrive in the Texas environment.

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