Debt Settlement
Accord and Satisfaction
Accord and satisfaction summary:
Accord and satisfaction is when two parties agree to discharge a legal claim for a debt for less than what's owed.
Debt settlement agreements are an example of accord and satisfaction—your creditor agrees to accept less than what you owe and forgive the rest of the balance.
Accord and satisfaction agreements are governed by state law.
Accord and Satisfaction Definition and Meaning
Accord and satisfaction is a legal term used to describe an agreement to settle a debt. State laws govern how accord and satisfaction agreements are defined, but it generally means that a creditor agrees to accept less than what's owed from a debtor.
That's how debt resolution works in a nutshell. You negotiate with creditors to pay less than the balance due. If the creditor agrees, the rest of the debt is forgiven.
Accord and satisfaction means the original agreement between a creditor and debtor is replaced with a new one. Both sides have to agree. In the case of debt resolution, a creditor doesn't have to accept a settlement if it doesn't want to.
More on Accord and Satisfaction
Debt settlement can offer relief when you owe credit cards, medical bills, or other types of debt and can't pay them in full. When you settle or resolve debt, you ask your creditors to agree to accept less than what you owe and forgive the rest.
Accord and satisfaction is a legal term that describes this kind of arrangement. When you and a creditor see eye to eye on accord and satisfaction, you work out a new agreement to replace the original one that you had.
Accord and Satisfaction: A Comprehensive Breakdown
When you open a credit account or get a loan, you agree to pay back what you borrow in full. Accord and satisfaction means that you work out a deal with a creditor to swap that agreement for a new one, usually so that you can settle the debt for less.
State law defines accord and satisfaction, and what requirements must be met for an agreement to be valid and legally binding. Here’s what these terms mean:
Accord: the agreement on how much you'll pay
Satisfaction: when you actually pay it
The accord is the agreement on how much you'll pay; the satisfaction happens when you complete your end of the bargain—when you pay the agreed-upon amount. State law defines accord and satisfaction and what requirements must be met for an agreement to be valid and legally binding.
Why would creditors agree to this kind of arrangement? After all, they could sue a debtor in small claims court and collect the full amount of the debt if they win their case.
Creditors may agree to an accord and satisfaction agreement if:
It would be too time-consuming or expensive to bring a debt lawsuit or to collect what's owed.
The statute of limitations on the debt is about to expire, which would make it uncollectible.
There's a possibility that the debtor may file for bankruptcy to erase the debt.
The upside for you, the debtor, is that you can save money by paying less than the full amount to satisfy the debt. You may also get out of debt faster if you negotiate settlements with the help of a professional debt consultant.
Real-Life Example of Accord and Satisfaction
Suppose you owe $15,000 across four credit cards. You fell behind on payments because of a financial hardship that kept you out of work.
You talk to a debt counselor who recommends debt settlement as the best solution for your situation. The debt counselor negotiates a reduction of the balances on each of the four cards on your behalf.
The credit card companies agree to accept the new amounts and forgive the rest. Instead of $15,000, you pay $11,250, or 75% of the original debt owed.
Your settlement agreements with each creditor include an accord and satisfaction clause. You pay the negotiated amounts to satisfy the accord. You walk away with the weight of the debt lifted off your shoulders, and your creditors get back some of what you owed.
If you think debt settlement could make sense for you, find a reputable company to work with. Ask about the negotiation process and what you can expect, as well as the fees you'll pay to make sure it's a good fit.
Accord and Satisfaction FAQs
Debt settlement differs from debt consolidation. Debt consolidation means replacing several accounts with one loan to reduce your interest rate and/or payment. But you have to qualify for the loan and it has to be affordable. Similarly, a plan from a debt management company can reduce your interest rate, but you must be able to afford the payments. With debt settlement, either you or a professional debt consultant negotiates with your creditors to reduce the amount you owe. However, creditors aren't required to negotiate with debt settlement companies.
Some debt settlement companies encourage clients to stop paying their credit card bills. If you do that, you'll incur late fees, interest, and other charges. Debt settlement can also harm your credit score.
If your debt is truly overwhelming, consider debt settlement. If your debt is truly overwhelming, consider debt settlement. Otherwise, debt consolidation is probably a better choice.
You can get a list of counselors from professional organizations like the Financial Counseling Association of America or the National Foundation for Credit Counseling. You can also find a list of credit counselors who are approved to provide services in your area through the U.S. Department of Justice.
When you begin a debt relief program, you can expect your credit score to drop. The impact can be significant if your credit is good when you begin. However, people needing debt relief don't usually go in with high credit scores. Generally speaking, the lower your score, the less it will be hurt by any negative event. And typically, people who complete a debt settlement program experience a steady credit score increase as they transition to a more affordable future. Debt settlement can help you recover a good credit score sooner than bankruptcy.
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