Debt Settlement Agreement Template for England and Wales

A Debt Settlement Agreement lets you formally settle a debt for less than the full amount owed, creating a legally binding arrangement between creditor and debtor. It spells out exactly how much will be paid, when payments are due, and confirms that the reduced amount will fully satisfy the original debt.

Once signed, this agreement protects both parties under English contract law - the creditor can't demand more money later, and the debtor gets clear proof that the debt is resolved once they make the agreed payments. Many UK businesses and individuals use these agreements to resolve outstanding debts without going through formal insolvency procedures.

Use a Debt Settlement Agreement when you need to resolve a debt situation but can't pay the full amount owed. This document proves especially valuable during financial hardship, when creditors might accept a reduced payment rather than risk getting nothing through formal insolvency proceedings.

The agreement works well for both individual and business debts in England, particularly when you can offer a meaningful lump sum payment. It provides a clean solution that avoids court proceedings, protects your credit rating from further damage, and gives creditors certainty of payment. Many creditors prefer this approach over costly debt collection or lengthy payment plans.

• Standard Lump Sum: Most common type where the debtor offers a one-time reduced payment to settle the full debt amount
• Structured Payment Plan: Spreads the settlement amount across multiple scheduled payments, often with specific default provisions
• Multi-Creditor Agreement: Coordinates debt settlement terms with multiple creditors simultaneously, common in business restructuring
• Conditional Settlement: Links the reduced payment to specific triggers or debtor actions, like asset sales or refinancing
• Full and Final Settlement: Explicitly states that the reduced payment completely discharges all related debts and future claims

• Debtors: Individuals or businesses seeking to settle their debts for less than the full amount, often due to financial hardship
• Creditors: Banks, credit card companies, suppliers, or other businesses owed money who agree to accept reduced payment
• Insolvency Practitioners: Professionals who often negotiate and structure these agreements during formal debt management
• Solicitors: Legal professionals who draft and review the agreements to ensure enforceability
• Debt Advisors: Financial specialists who help negotiate terms and explain implications to all parties

• Debt Details: Gather exact amounts owed, account numbers, and relevant payment history
• Party Information: Collect full legal names, addresses, and contact details for all creditors and debtors
• Settlement Terms: Define the agreed reduced payment amount, payment schedule, and any conditions
• Financial Evidence: Document proof of financial hardship or inability to pay the full amount
• Payment Method: Specify how and when payments will be made, including bank details
• Release Terms: Clarify that payment fulfillment releases all future claims related to the debt

• Party Details: Full legal names and addresses of both creditor and debtor
• Original Debt: Clear statement of the original debt amount and its origin
• Settlement Terms: Precise amount of reduced payment and payment schedule
• Release Clause: Statement that payment satisfies all claims related to the debt
• Default Provisions: Consequences if settlement payments are missed
• Governing Law: Explicit reference to English law jurisdiction
• Signatures: Dated signatures of all parties, with witness requirements if needed

A Debt Settlement Agreement differs significantly from a Debt Assumption Agreement in both purpose and effect. While both deal with debt obligations, they serve distinctly different functions in English law.

• Primary Purpose: Debt Settlement Agreements reduce and resolve existing debts, while Debt Assumption Agreements transfer debt obligations from one party to another
• Parties Involved: Settlement involves original creditor and debtor, while Assumption requires three parties - original debtor, new debtor, and creditor
• Financial Impact: Settlement typically reduces the total debt amount, whereas Assumption maintains the full debt value but changes who pays
• Legal Effect: Settlement permanently closes the debt obligation, while Assumption creates new legal responsibilities for the assuming party