Full and final settlement offers

 February 2017

Fact sheet no. 38 SCOT Full and final settlement offers

This fact sheet tells you how to offer your creditors a reduced sum to pay off your debt, rather than the full amount you owe. 

Use this fact sheet to:

  • understand how your credit reference file will be affected;
  • work out suitable offers to your creditors; and
  • help you to write a letter making the offer.

Full and final settlement offers

This fact sheet explains how to make offers in ‘full and final settlement’ to your creditors. This means that you ask the creditors to let you pay a lump sum instead of the full balance you owe on the debt. In return for having a lump sum payment, the creditor agrees to write off the rest of the debt.

You may be able to do this because you have come into some money or have some savings you can use. Sometimes a friend or relative offers to put forward a lump sum to help you pay off the creditors. Your circumstances may be very unlikely to change for the better in the future. It is very important that you explain to the creditors that the money will not be available forever and the friend or relative will not make the payments unless the offer is accepted.

The Debt Arrangement Scheme

See our fact sheet:

Debt Arrangement Scheme (DAS).

If you have already entered into a debt payment programme (DPP) under the Debt Arrangement Scheme (DAS), contact your approved money adviser to discuss the possibility of making an offer in full and final settlement to creditors included in the DPP. The money adviser may be able to ask the creditors to agree to a composition (that is, a partial write off of the debt). If this is accepted, the money adviser will contact the Office of the Accountant in Bankruptcy (who administers the scheme) to seek an early end to your DPP.

How to make a settlement offer


keep a paper trail

Make sure you keep copies of any letters you send.

  • It is very important to make sure the creditor accepts your full and final settlement offer in writing. Make sure you keep a copy in case there is a dispute. This could happen years later and you may need the letter as proof.
  • Never send a lump sum payment before the offer is accepted.
  • It is a good idea to get a third party to send the money on your behalf. This helps your agreement to be more legally binding, if the creditor accepts the money via a third party.
  • If you are settling a debt that is large or particularly important, you could have a formal agreement drawn up by a solicitor and signed by you and the creditor. This is not normally necessary.

What happens to my credit reference file?

Make sure the creditor agrees in writing to change your credit reference file details to show that the balance has been paid and the date this happened.

  • Check this has been done by asking the credit reference agencies for a copy of your credit file.
  • You can expect to see your account showing as having been closed.
  • Your balance should change to ‘zero’ to show that there is no more money due.
  • Credit reference agencies will mark the account with a ‘P flag’ for ‘partial settlement’ which means that you have made a part payment and not paid the balance in full.
  • The account will stay on your file for 6 years from the date that the account was defaulted.

Should I use my pension to pay my debts?

Extra advice:

no pressure

The Financial Conduct Authority has made it clear that your creditors must not put any pressure on you to use your pension pot to pay your debts.  Making a hasty decision could mean you lose money because of the tax or benefit rules. Contact us for advice.

Since April 2015, if you are 55 or over, you may be able to take money from your pension fund to pay your debts. Creditors shouldn’t pressurise you to do this. Taking money from your pension fund early can have a big effect on your financial future. You may also have to pay tax on some of the money that you take. Your entitlement to benefits could change, both now and in the future.

If you are thinking about taking money from your pension, contact us for advice.

Working out offers of payment in full and final settlement

 You may have a lump sum that you need to divide up amongst several creditors. The usual way of doing this is to make ‘pro-rata’ offers. This means that each creditor gets a fair share of the money you have available. The creditor you owe the most to will get the biggest share of the money and the creditor you owe the least to will get the smallest share.


creditors must treat you fairly

The Financial Conduct Authority (FCA) has issued rules and guidance in its Consumers Credit sourcebook (CONC) about settlement offers.

The FCA says:

'' If a firm accepts a customer's offer to settle a debt, it must communicate formally and unequivocally that the offer accompanied by the relevant payment has been accepted as settlement of the customer's liability.''

Consumer Credit sourcebook (CONC) 7.14.14

  • Find out the exact balance you owe to each creditor.
  • Use the example Formula to work out how much to offer to each creditor.
  • Send the offers to all your creditors along with a table setting out how you have worked the offers out. It is helpful if creditors can see that they are all receiving a pro-rata offer of settlement; then they know they are all being treated fairly.
  • If some of the creditors refuse, write to them again and ask them to reconsider. Tell them if any of your other creditors have accepted the offer and explain your circumstances again. If your creditors still refuse, contact us for advice to see what other options you may have.



Lump sum available X each debt 

÷ the total amount you owe to your creditors

= offer to the creditor


You may have £10,000 owing to four creditors. You can raise a lump sum of £4,000.You owe:£2,300 to Mastercard £1,200 to a catalogue company £4,500 to a loan company £2,000 to the bank. Use the formula:

  • £4,000 (lump sum available) X £2,300 (debt to Mastercard)
  • ÷ £10,000 (the total amount you owe to your creditors)
  • = £920 (offer to Mastercard)

Your offer to Mastercard is £920. You then do the same calculation for each creditor, using each individual debt in the calculation.Your offers to your creditors should look something like this:

Offers to creditors based on a full and final settlement of £4,000

​Creditor Debt​ Full and final settlement offer​
​Mastercard ​£2,300 ​£920
​Catalogue £1,200​ £480​
​Loan £4,500​ £1,800​
​Bank ​£2,000 £800​
​Total £10,000 £4,000​