Full and Final Settlements - a win-win solution?

The overriding thing I have learnt since my introduction to the debt management sector is that negotiation is key. The vital importance of debt solutions companies lie in their ability to deal with creditors, and one debt solution which makes full use of this ability to negotiate is a Full and Final Settlement offer.

Debt Management Today approached a number of debt management companies in the hopes of finding out how popular this debt solution actually is, the process required and whether it really can offer a good deal for both creditors and debtors...

So what exactly are Full and Final Settlements?

A Full and Final Settlement offer involves asking a creditor to let a client pay a lump sum which is less than the full balanced owed on the debt. Rob Pavey, Senior Sales Executive at Money Debt & Credit Group Ltd, explained further. “The process involves us contacting the creditors on behalf of our client to try and negotiate the lowest possible settlement.

“Each creditor has to be approached in a different way and careful justification has to be made when making offers as to why the creditor should accept our offer and agree to write off such large amounts of debts. It’s different to other debt solutions because it’s instant, meaning the debts are going to be cleared with one payment and not progressively over a number of years like Financial Management/IVA or a Trust Deed, ” he said.

Vance Parsons, Director of EuroDebt, told us that, whilst Full and Final Settlements can be used in isolation from a DMP, they are most effective as an integrated part of a DMP. “An individual’s circumstances may change over the lifetime of a DMP and it is not uncommon for clients who are several years into their plan to gain access to a lump sum through re-mortgaging, friends and family, bonus payments, inheritance, pension release, sale of endowments and other windfall payments.

“Naturally they will want to ensure these funds are utilised in the best way to settle as many of their debts as they can. This may result in partial settlement or full settlement of their debts based upon the negotiated amounts achieved with their creditors,” he stated.

The Full and Finals Team Manager at Harrington Brooks, Joel Murray, who handles the company’s Full and Final Settlements, talked us through the process. “A client will let us know they either have or will have funds available to clear in full either all or some of their creditors,” he explained.

When we asked him what type of funds, he continued: “This could be funds they have inherited, pending from redundancy, support from a family member, funds due after an accident and many other different sources.

“Harrington Brooks will then contact all creditors to see what would be the best option for the client and creditor going forward. It’s usually a win-win situation with the creditor walking away with a satisfied debt and the client becoming debt-free. Depending on how much the client has available, the difficult part is getting all parties to agree to something that will work.”

He added, “Each creditor is individual and has their own agenda for settling debts which in cases with a large number of creditors can become very complex. Sometimes deals are negotiated right down to the wire with timescales differing with each case.”

Mark Fawcett, Sales and Marketing Director at Debt Release Direct said: “A Full and Final Settlement is a solution that allows people who receive a windfall to potentially settle their debts early, normally at a reduced rate.

“As an example of this, Debt Release Direct help a lot of clients with their PPI claims, which can result in the customer receiving a lump sum – the client may opt to use this sum and apply for a full and final settlement.”

Amer Ikram, of Islamic Debt Solutions, explained that his company would “enclose an income and expenditure report alongside a list of creditors, and indicate the approximate amount the clients can raise and how much they can pay. Some creditors accept, some don’t.

“Often, if a person has no property (especially no property with any equity in it) then the chances of settlement are increased. Creditors know that if the person is renting, and they have no property and are in debt, there is not a huge amount the creditors can do in terms of getting their money back. For that reason, if a creditor knows they are being offered a lump sum from a tenant, it is best for them to take it.”

Vance Parsons agreed. “Creditors will generally want to know how the client obtained the funds and their policies may vary widely depending on individual circumstances and homeowner status,” he said.

How popular are they?

Rob Pavey stated, “Full and Final Settlements are definitely a popular option for clients. They are limited though, as not many people who are struggling with debt have access to a lump sum to use to clear their debts with.”

Mark Fawcett spotlighted PPI claims clients as though most likely to make use of Full and Final Settlements. He said, “If a client has just accumulated some money via inheritance, a win or any other windfall, they may choose to try and make a full and final settlement in order to stop accruing interest on their debts.

“Full and final settlements work well for people who are struggling to pay their debts, as they may receive a more favourable response due to creditors preferring a guaranteed one off payment rather than sporadically receiving small contributions towards the debt.”

Joel Murray also suggested that clients are aware of the benefits, explaining, “It’s the quickest and cheapest way for the client to improve their financial situation; who wouldn’t want to become debt-free at a discounted price?”

However Amer Ikram offered a slightly different perspective. “I would not put them in the same category as IVAs or DMPs,” he said, “because they are probably not as popular. The problem is, individuals who are really keen often only have one creditor – and if this creditor knows they are the only one they are much less likely to negotiate.

“I think that Full and Final Settlements are a popular option, but, increasingly, people just don’t have the funds to pay. If they only owe one creditor, this option requires them to find 75-80 per cent of the debt.”

Win-win?

Rob Pavey emphasised that the settlement requires strong negotiation skills from the debt management company. “Depending on who the creditor is will determine the method used to make the offer; some we can negotiate with directly over the phone straight away, some we will have to deal with in writing, so we would post or fax our written offer, and some we have to deal with via email.

“There is often bartering involved between us and the creditor until we can agree on a figure (they don’t always accept our first offer).”

Debt Release Direct told us that, for them, Full and Finals are a useful product to help many valued clients and creditors reach an agreed and positive solution to debt problems.

For Amer Ikram, this debt solution, and negotiation in general, can only be a positive thing. He quoted a passage from the Koran to us when referring to Islam’s emphasis on the fact that if a borrower is struggling, they should be given time. “If the debtor is in difficulty, grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew (2:280). From an Islamic perspective, it is virtuous to forgive debt, and because of this, Full and Final Settlements, and the negotiation involved, can only be a good thing.”

Vance Parsons stressed that, for debt management companies, it is about doing everything possible to get the best outcome for the client. “Certainly at EuroDebt, we work closely with clients who are looking to Full and Final Settlements to help clear their debts, to find the best outcome for them based upon their personal preferences and circumstances.”

By Miranda Atty

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