Full And Final Settlements: The Basics |
If
you owe money, you can ask your creditors to let you
pay a lump sum which is less than the full amount of
your debt. This is called a Full and Final
Settlement. In return for this payment your
creditors agree to write off the rest of what you
owe.
As a rule, people are in a position to make such an
offer because they’ve come in to some money or have
some savings they can use. Alternatively,
a
friend or relative
may be able
to
provide the
sum
required.
Calculating the Payments
Generally, your lump sum will need to be divided up
amongst several creditors. The way to do this is to
make "pro-rata" offers. This simply means that your
largest creditor will get the largest share of the
money available and the smallest creditor the least.
You calculate who gets what by using the following
formula:
(Lump Sum Available x Debt to Creditor n) ÷ Total Debt = Offer
to Creditor n
So, say you owe a total of £20,000 to 4 creditors.
You owe:
£6,400 to Mastercard
£2,200 to a store card
£7,000 to a loan company
£4,400 to the bank.
You are able to pay £8000.
Using the formula, we have:
£8,000 (lump sum available) x £6,400 (debt to
mastercard)
= £51,200
÷ £20,000 (the total amount you owe)
= £2,560 (your offer to Mastercard)
You then do the same calculation for the other
creditors, which will give you the following overall
result (in table form).
OFFERS TO CREDITORS BASED ON A FULL AND FINAL
SETTLEMENT OF £800
CREDITOR DEBT FULL & FINAL OFFER
MasterCard £6,400 £2,560
Store Card £2,200 £880
Loans £7,000 £2,800
Bank £4,400
£1,760
Total £20,000 £8,000
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