When you and your creditor agree to resolve an outstanding debt through a debt settlement agreement, either the creditor or you will (or should) draw up a written agreement to be signed by both you and the creditor. This agreement should accurately memorialize the terms of your agreement. A poorly written debt settlement agreement, however, will afford you few of the advantages of a debt settlement plan. Here are five matters that should be addressed in your debt settlement agreement to ensure you obtain the maximum benefit from your agreement:
The debt itself: Make sure that all debts covered by the agreement are listed accurately. Check to see that the agreement lists the correct account numbers and balances. Misidentifying the debt covered by the agreement can result in misapplication of your payments. The omission of a debt that was supposed to be included in the agreement can result in you owing the full amount of the debt.
The settlement amount(s): Your agreement should also clearly specify what settlement amount will be paid for each debt listed in and covered by the agreement. Make sure that when describing the settlement amount that the agreement indicates the creditor is specifically agreeing to accept this settlement amount and will charge-off any remaining balance you may owe on the account. If your settlement amount will be paid in more than one installment, make sure the agreement indicates the total number of installment payments that will be made and the amount of each installment payment.
The time frame: The agreement should state the time frame within which the parties are to perform their respective duties under the agreement. Give yourself sufficient time to make the settlement payment: most debt settlement agreements require the debtor to pay the amounts owed under the agreement within 30 to 60 days (you and your creditor may, of course, agree to additional time). The agreement should then state the time frame within which the creditor must report that the debt has been settled or resolved to the credit bureaus.
How the debt will be reported: Depending on your bargaining position when negotiating the settlement, you may be able to obtain concessions from the creditor in which the creditor will agree to report your debt as “paid in full” (a favorable notation) and/or remove late payment information from your credit report. If you fail to include these concessions in your written agreement, it may be difficult to enforce these concessions if the creditor fails to follow through.
Release of claims: Your agreement should include a release wherein the creditor agrees to accept the settlement amount as payment of the account and agrees to release any legal claims it may have against you regarding the settled debt(s). This will protect you from the creditor filing a lawsuit against you regarding the debt and any other obligation you may owe the creditor under the terms of your original promissory note.
Because of the negative consequences that can result from a poorly-drafted debt settlement agreement, it is highly advisable for debtors to have a debt settlement lawyer prepare the agreement as opposed to trying to draft one yourself. If the creditor insists on preparing the agreement, be sure to show the agreement to your debt settlement attorney before signing the agreement. Do not be afraid to insist on changing the debt settlement agreement to accurately reflect the actual agreement you reached as it is very difficult to enforce terms of a debt settlement agreement that are not contained in the written agreement itself. Find out more about what needs to be included in a debt settlement agreement by contacting the law firm of Ariano & Associates, PLLC.