In order to settle debt for less than the principal amount owed, a lump sum of money is mandatory. In most instances, this is not practical, but on occasion funds are realizable. The debtor may have resources available for procuring funds, and these options should be explored by the consultant.
Any settlement reached on behalf of a debtor during negotiations should be fully documented. The debtor will be given a release by the creditor, pending final payment. It is useful to obtain the creditor’s consent to update the local credit bureau that the claim has been resolved. This often facilitates the debtor obtaining credit in the future.
As a general statement, with 50% of claims, the creditor will settle for 50% of the claim. Most creditors will settle for less than the claim, given creditors have often “written down” an amount that has gone to a formal collection process or litigation, and face the following: