0

Why Would a Creditor Agree to Debt Settlement?

Debt settlement often refers to a debtor and creditor negotiating a reduced fee on the total debt outstanding in exchange for payments to be made regularly. There are many forms of debt settlement out there but one question tends to baffle consumers. Why on Earth would a creditor agree to cut your debts?

Well, if you are the type of person who has never disputed a debt and has made regular payments on an ongoing basis without missing one for years, the chances are they wouldn’t. If, however, you are unable to meet your monthly payments and therefore keep missing them, debt settlement has benefits for the creditor.

When a debtor can’t afford to make their payments and continues to miss them, a creditor could of course take legal action. They may be able to have a CCJ issued. But this won’t physically force someone into repaying and won’t mean the debtor is any more likely to be able to afford it. They could petition to force a consumer into bankruptcy, but they then run the risk that the consumer will be made bankrupt and not pay any of their debts back.

So while legal action against a debtor who is not making payments is a possibility, this can often be a large expense and inconvenience for a creditor, with no guarantee of them getting their money back.

This is why debt settlement has benefits for creditors. In agreeing to reduce the level of debt to something affordable to the debtor in exchange for a regular repayment (sometimes over an agreed period of time) the creditor is more likely to at least get a portion of their money back, as opposed to risking a long legal process with no reward.