What to do if Full & Final settlement offer is rejected?

A reader asked what she should do as her reasonable Full & Final settlement offer had been rejected. It’s going to seem obvious, but the creditor rejected the offer because it didn’t seem reasonable to them.

You may be thinking “I paid off the amount I borrowed ages ago, their interest is too high” or “They probably bought this debt for pennies, so they should be happy to accept 10%” but that’s not the way your creditors think. They are running a business which means they want to get the most money that they can from you.

So if your F&F has been refused, you need to look at your offer through the eyes of your creditor and think why they would have rejected it, and then use that to decide what to do next.

Your creditor thinks you can afford to pay more each month

You know you can’t but you have to prove this with detail, not just say it.

If you enclose an Income & Expenditure statement with a settlement offer, the creditor can see your full situation. This calculator has an option to print off a version to send to your creditors.

If your health is poor, you should think about enclosing some information about this – say a copy of a hospital appointment – it’s all evidence about your situation. If your only income is from benefits,  enclose a letter about your Universal Credit, disability benefit or Pension Credit to prove this.

It’s too soon for this offer

If you have just lost your job, you may know that you won’t be able to find another one at the same money and your situation is just going to get worse, but creditors will rarely accept F&F offers before you have defaulted on your debts.

And if you have only missed a few months payments they are unlikely to accept a low F&F. Here is a reader asking about his case, and my reply.

In this situation, the best thing is usually to set up a Debt Management Plan(DMP)  or making £1 a month token payments. You can then revisit the idea of making a settlement offer in a year or two.

At that point your creditor will have realised that you weren’t kidding and that you really do have difficulties.

It is also often much easier to get a F&F offer accepted after your debt has been sold to a debt collector, so that can actually be good news when it happens.

It’s not high enough

This partly depends on how long you have been making no or reduced payments – the longer time, the more likely your creditors are to accept a low offer. It also depends on how large your monthly payments are – if the full debt will be repaid in 3 or 4 years, then your creditor isn’t likely to accept a 20% F&F.

One option here is to make a larger offer to one or two creditors. So if all your creditors refuse a 30% offer, then you could consider offering a couple of them 50%. Of course it would have been better to sort out all your debts, but clearing some of them out of the way will mean the remaining ones are faster to repay.

It’s not clear where the money is coming from

If the money for the F&F offer is coming from a “one-off” source – perhaps you have reclaimed PPI or it is redundancy pay – then explain this in your F&F letter, so your creditor will realise that they may as well accept as there isn’t going to be any more on offer. If the money is a gift from a relative you could say “I am being offered this money by my brother if it will assist in securing a settlement of my debts”.

(NB If you have been made redundant and are going to find it difficult to get another job, then think about your essential bills – mortgage, food, utilities etc – before using your redundancy money to clear unsecured debts.)

They know you have assets

If you owe a lot of money to a creditor, especially if the creditor is your bank, then they may have decided to look into your finances in some detail and realise that you own a house with a lot of equity in it.  That doesn’t mean they will never accept a F&F, but it is unlikely that they will accept a really low one.

If you have been making very low payments for a lot of years, not just a few, AND the debt has been sold to a debt collector, look at this alternative approach: When and Why to ask for the CCA agreement for a debt.

It is rare for a creditor to accept a partial settlement on a secured loan. Even if you can demonstrate that you have negative equity, most secured lenders or creditors who have got a charge on your house will usually reject an offer.

Summary

Your options come down to some combination of:

1. repeating your offer with more information about your situation and/or where the money for the offer is coming from;
2. offering more to a few creditors; or
3. waiting a while then repeating your offer.