A settlement is a consensus between two parties. It is used in order to avoid lawsuits and escalating disputes. You can furthermore use a voluntary settlement to reach an agreement on the repayment of debt.

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What is a settlement?

A settlement is, when two or more parties reach a consensus on how to solve a dispute. This way, it is possible to end a case without a sentencing. Since a settlement is legally binding, it has the same significance as a court sentence or a contract, if submitted to and approved by a court.


You commonly enter into a settlement, if there is no interest in a lawsuit. This can either be, because it is too cumbersome, because it is too expensive or because the litigation risk is too high. It is usually a requirement for one or both parties to reach out and meet their counterpart halfway. Moreover, it is good legal practice to mediate a mutual agreement between the parties before continuing with a lawsuit. The rules for such are stated in the Civil Procedure Law.


If a settlement is reached in a civil lawsuit, it is referred to as a court settlement. Thereby, the case is ended quickly and efficiently. Contrary to a sentence, a settlement can not be appealed, since it is legally binding.

Voluntary settlement (installment scheme)


Occasionally, an individual will not be able to pay their bills in time. In this instance, it is possible to enter into a voluntary settlement, so the debtor can avoid reminder fees, collection, installment schemes with a bailiff and, finally, an entry with the General Credit Protection Agency or being declared insolvent. In that instance, a bond or a debtor’s declaration is established, referred to as a voluntary settlement with installment scheme. Here you can find a template for such a contract.


In essence, a voluntary settlement with installment scheme is a bond, that determines, how an amount is to be repaid. There are two basic kinds of voluntary settlement: a bond, where the debtor does not repay their debt or a voluntary settlement, where the creditor demands payment.


In case of the former, a voluntary usually includes a statement of the size of the debt (in pounds and pence) and an agreement on the installment scheme (that the concerned pays amount X every month, e.g.). Furthermore, you can elect to include agreements regarding interest and a clause on compulsory enforcement, that establishes the rules, in case a payment is not made or a deadline is exceeded. Hereby, one can make sure that the debt is collected, if the agreement is defaulted on.


Last but not least, it is a good idea to receive a signed copy of the agreement, unless there can be no doubt about the agreement’s validity, should it come to a lawsuit anyway. It is necessary, if you want to avoid the debt becoming obsolete. Debt can become obsolete and thereby invalid, if you do not continue to receive a signature on the debt’s existence. By using Contractbook, you can set a reminder, so that you always receive a notification when it is time to renew the agreement.

Benefits of a voluntary settlement


A benefit of a voluntary settlement is showing good will towards the debtor by providing them with a realistic opportunity to repay their debt. This can be advantageous, if you wish for a continued cooperation or if you want to keep a customer dealing with temporary financial problems.


This friendly and accommodating gesture should furthermore make it more reliable to collect on debt at a later point in time. Simultaneously, you avoid having to use more resources and create a good foundation to collect on your debt.


If you owe a debt yourself, it can be a good idea to pay attention to not being subjected to higher interest rates or other fees in addition to the already unpayable debt. At the same time, you should be able to meet the installment scheme agreed on in a voluntary settlement. It can be shaped into a debt restructuring.


If you follow through with demanding open debt, it can end with debt collection, bailiff and, eventually, foreclosure.

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Disclaimer: This overview is for informational purposes only and cannot be counted as legal advice.