3 minute read • Upsolve is a nonprofit that helps you get out of debt with education and free debt relief tools, like our bankruptcy filing tool. Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card. Explore our free tool
In a NutshellIf your lender agrees to let you settle a debt for less than what you owe, you'll need a written agreement that includes: - Information about the debt - What you'll be expected to pay - How much will be forgiven - What the repayment terms are If your lender doesn't send an agreement, you can use the template in this article to draft a written agreement to make sure you're both on the same page. It’s important to get any debt settlement agreement in writing!
Written by Mark P. Cussen, CMFC. Legally reviewed by Attorney Paige Hooper
Updated August 1, 2024
Debt settlement is a form of debt relief. It’s most popular for credit card debt. Negotiating a debt settlement agreement for other kinds of debt like student loans, a car loan, or home mortgage usually isn’t possible.
That’s partly because unsecured debts like credit cards and medical bills don’t involve collateral and can be erased in bankruptcy. If a creditor or debt collector believes you may file bankruptcy, they might be motivated to settle your debt for less than the total amount so they get something rather than nothing.
If you make an agreement with a creditor or debt collector to settle an outstanding debt, you’ll need to formalize your agreement in writing. Often, the creditor will draft a letter and send it to you. If they don’t, you can write the agreement yourself. Send two copies to your creditor so that they can send a signed copy back to you.
Having the agreement in writing ensures all parties are on the same page about the settlement terms. It’s also there for future reference if you or your creditors have any questions about the settlement of the debt.
I had zero knowledge of the bankruptcy process. I was lost and had no idea how to even start. After doing a little research and luck I finally found Upsolve. They make everything easy and stress free and also educate you with the step by step strategy they have in place. I Couldn't give them a high enough review. Thank you Upsolve!
Read more Google reviews ⇾ Terisa Nelson ★★★★★ 2 days agoThe process was incredibly easy, and any questions I had were answered within 24 hours. It's such a relief to have that stress behind me. They also guided me through the court filing process, which eased my anxiety because I knew exactly what to expect and felt fully prepared.
Read more Google reviews ⇾ Explore Free ToolHere is a template you can use to draft your debt settlement agreement. Customize the information contained in this agreement to match your circumstances. The agreement letter can be either simple or complex, depending on your specific financial situation and the type of debt that you owe.
A word of caution: This is only a template. It’s offered here so you can see what debt settlement letters look like. This shouldn’t be construed as a recommendation for its use as a final legal document. Seek legal advice if you need to.
This Debt Settlement Agreement (hereafter, “Agreement”) is between ________________________ (“Creditor(s)”), and ______________________________ (the “Debtor”). (When mentioned together, the “Parties.”)
___________________ [mm/dd/yyyy] is the effective date of this Agreement.
The Parties agree to the following terms:
Debtor currently owes $____________________ (“Present Debt”). The account number associated with the Present Debt is ________________________.
Creditor agrees to accept a Debt Settlement Payment in the amount of $____________________ as full payment and satisfaction of the Present Debt. Upon acceptance of Debt Settlement Payment, Creditor will a) discharge the Present Debt as paid in full, b) update/modify its internal records to denote Debtor's Account associated with the Debt as paid in full, and c) make any and all efforts to report to all credit reporting agencies that Debtor's Account associated with the Debt is marked as paid in full.
Debtor will make Debt Settlement Payment by: [choose one]
__ Lump sum, on or before ___________________ (mm/dd/yyyy)
__ Installments: [specify the number of payments, amounts, and due dates]
Debtor will execute Debt Settlement Payment by: [choose/identify one]
__ Certified check
__ Other: ________________________________.
If Debtor fails to make any payment by its due date listed above, this Agreement will immediately become void.
This Agreement is binding on the Parties involved, including successors or assignees.
If any provision or part of this Agreement is deemed unenforceable for any reason, the remaining provisions or parts will remain in full effect.
This Agreement shall be under governing law of the State of ______________________.
Debtor's name (printed): ________________________________________________
Debtor's signature: _____________________________________________________
Date signed: ___________________________________________________________
Creditor's printed name: _________________________________________________
Signature of creditor's authorized representative: ____________________________
Date signed: ______________________________________________ (Effective date)
Be aware of the impact that a debt settlement agreement can have on your credit score. If your creditor agrees to report to the credit bureaus that your debt has been paid in full, then this can help your score. Conversely, if your creditor reports that you have only paid in part or settled for a lesser amount of debt, then this could create another blemish on your credit report. Still, a partial settlement is ultimately better for your credit than a debt that remains unpaid.
Whether you or the creditor writes the debt settlement agreement, you’ll want to ensure the terms of this agreement are clearly spelled out.
To that end, make sure it contains the following information:
*This is also negotiable. The creditor may report the debt as any of the following (or something else):
If you can negotiate for the creditor to report the debt as “zero balance” or “paid in full,” this will look better on your credit report and won’t hurt your credit score as much.
If you’ve negotiated a settlement with a creditor, you can use this template to get the terms of the agreement in writing. You can modify this template to fit the needs of either party. If you want to ensure that your agreement is legally binding, don’t hesitate to have an attorney write it or review your copy. They may also have other useful legal advice regarding your debt settlement agreement. Debt settlement can help you find debt relief and get your personal finances in order, so be sure to follow the guidelines presented here.