Business compliance keeping you awake?
Cleartax's wide range of compliance services is here for you
Explore Now

Debt Settlement Agreement

Updated on: Oct 12th, 2021

|

4 min read

social iconssocial iconssocial iconssocial icons

Lending someone money, whether an individual or a company is always a risky affair. Due to the uncertainty in the movement of market forces, there is never a guarantee that you will get back the entire amount of the loan. Rather, in most cases, the recovery of the loan does not happen. The debtor usually finds himself in a fix at the time of repayment. However, this has led to the creation of the concept of “Debt Settlement”.

What is the Meaning of Debt Settlement?

Debt settlement is where a creditor gives his/her consent to forego a certain percentage of the outstanding amount. He agrees to settle at a reduced final figure of the total amount due. The Debt Settlement Agreement is a written agreement between a debtor and creditor where the debtor agrees to pay the creditor the outstanding debt due to him.

It is also known as the Debt Compromise Agreement. This agreement can be legally enforced by printing it on a non-judicial stamp paper, affixing the stamp duty as per the state laws, with the signatures of both the parties agreeing to it.

Contents of a Debt Settlement Agreement

  • Date of the agreement.
  • Name and address of the creditor.
  • Name and address of the debtor.
  • Original loan amount and its date.
  • Rate of interest.
  • Due date of the loan.
  • Final settlement amount.
  • Signatures of both parties.
  • Signature of the witnesses.

Merits of a Debt Settlement Agreement

  • For the debtor, the avoidance of court trials, for the most part.
  • For the creditor, a specified portion of the amount back is guaranteed.
  • The document, in itself, serves as evidence as and when needed.

Demerits of a Debt Settlement Agreement

  • Unfavourable terms in the Debt Settlement Agreement.
  • Late fees or interest may be inserted in the agreement.
  • It can lead to a negative impact on credit score.

Debt Settlement Agreement Template

Download Debt Settlement Agreement Template Here

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

inline CTA
Get an expert at affordable price
For ITR, GST returns, Company Registration, Trademark Registration, GST Registration
CONTENTS

Clear offers taxation & financial solutions to individuals, businesses, organizations & chartered accountants in India. Clear serves 1.5+ Million happy customers, 20000+ CAs & tax experts & 10000+ businesses across India.

Efiling Income Tax Returns(ITR) is made easy with Clear platform. Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.

CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax. Clear can also help you in getting your business registered for Goods & Services Tax Law.

Save taxes with Clear by investing in tax saving mutual funds (ELSS) online. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Download Black by ClearTax App to file returns from your mobile phone.

Cleartax is a product by Defmacro Software Pvt. Ltd.

Company PolicyTerms of use

ISO

ISO 27001

Data Center

SSL

SSL Certified Site

128-bit encryption