Debts refer to the amount of money borrowed from another party (the creditor). Perhaps you are planning to buy a property, expand on your business, or pay other unplanned bills but don’t have the ready/sufficient capital to make such purchases or transactions. In such cases, you may decide to borrow some cash either from financial institutions, trustees, or friends.
When borrowing, it’s important that you be very mindful of how you’ll make repayments. Unfortunately, sometimes you may find it difficult to settle the debt promptly as earlier planned. When such circumstances prevail, you can reach an agreement with the lender/creditor through a Debt Settlement Agreement.
What is a Debt Settlement Agreement?
A debt settlement agreement is an agreement reached between a creditor and the debtor to resolve the outstanding debt balance. Usually, this form of agreement comes when the debtor isn’t in a position to make full repayment of the dues owed. Instead of defaulting the debt or chasing down payments, the Agreement Form comes in handy to help both parties to create new rules that will make it easy for the borrower to service their debts. For instance, both parties can agree that the debtor makes partial payments for a certain period of time. The following are some of the reasons why you need a debt settlement agreement.
Reasons for Signing a Debt Settlement Agreement
First, a debt settlement agreement is a formal document hence legal. Therefore, it can be used as proof or evidence that the debtor and the creditor came into an agreement regarding the outstanding debt.
Secondly, a debt settlement agreement provides proof of a transaction or even processes that the parties will engage in. In other words, it provides rules and regulations that the debtor will follow while making repayments of the dues.
Also, a debt settlement agreement provides the creditor with an assurance that the debtor is willing and committed to settling the dues.
How Do you Write a Debt Settlement Agreement?
Writing a debt settlement agreement presents a challenging task for many. If you want a readily written template, you can go ahead and download it here. These debt settlement agreement templates are professionally written to give you an easy time when filling. Also, they are highly customizable to suit your preferences and convenience. However, if you want to write one on your own, the following steps will guide you.
- Start with the names and addresses of both the debtor and the creditor.
- Then an acknowledgment of the debt should follow.
- Mention an agreed settlement amount as well as a time frame.
- Note that the debt settlement firm will supersede the prior agreements or negotiations made in regard to the debt.
- Further assurances, rules, and recommendations are made.
- Sign of from both parties. By signing, the document is executed and becomes legal.
Free Templates & Forms
What Are The Consequences Of Failing To Adhere To The Debt Settlement Agreement?
Depending on the states where you reside, failure to honor the debt settlement agreement can attract various kinds of penalties. Generally, the following are some common consequences of not adhering to a debt settlement agreement.
Bankruptcy. Failure to honor a debt settlement agreement can be considered as an act of bankruptcy. When rendered bankrupt, you will not be able to apply for future credits successfully.
Violating a debt settlement agreement gives the creditor the right to sue you in a court of law and face charges accordingly.
Also, when the period stated in the debt settlement agreement elapses without any noted obligations, the creditor, through the security of credits, will use the opportunity to sell all the items you enlisted as security.
Frequently Asked Questions
A debt settlement agreement is a legally binding document that a creditor engages with the debtor in order to repay the outstanding debts. As mentioned above, these agreements allow the debtor to make repayments in small portions which he or she can afford.
For you to be eligible for the debt settlement agreement, you should be insolvent. In other words, you should be in a position in which you can’t afford to repay your debts as per the original agreement. Secondly, you need not be bankrupt within the last ten years or so.
The moment you’ve signed a debt settlement agreement, all your unsecured debts get frozen. In other words, there will be no other interests or charges applied to the debt. This is meant to enable you to settle your debt as per the agreement.
The only types of debts that can be included in the debt settlement agreement are provable unsecured debts. These include medical bills, credit cards, personal loans, to mention a few.