Debt settlement is an option available to a consumer who has significantly fallen behind on payments. Settlement arrangements typically occur once a consumer has reached the 90-day past due on an account, or when the account has been referred to a collection agency.
Significance
Debt settlement options allow a consumer and creditor to come to an agreement settling debt for less than the balance. This can be as much as 50 percent less than the balance in some cases. Once paid in full, the creditor will mark the debt as paid in full and cease further collection activity on the remainder.
Payment Arrangments
Payment arrangements for debt settlement are possible. In order to be able to make payments on an agreed upon settlement amount, a payment agreement must be written and signed by both the creditor and the borrower.
Failure to Pay
If an agreement has been reached for payment arrangements and a borrower fails to maintain the payments, the settlement arrangement can be canceled and the creditor can resume collection activity for the entire amount of the debt.
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