The main reason why creditors will agree to a debt settlement plan is to simply get paid. Rather than risk not getting any payment, they are more than willing to receive a portion of the payment just to be able to recoup their losses. In fact, with the state the economy is in, some credit card companies have been calling delinquent debtors and offering to accept even fifty percent of the remaining balance as full payment of the loan.
Creditors will also agree to debt settlement if you have given them every reason to believe that this is the only chance that they will receive anything from you. This normally happens when you are about to file for bankruptcy and if they will not agree to settle, they risk not getting paid instead. As a debtor, however, you should only use the threat of bankruptcy only when you really intend to file for it soon. Should you incur more debt right after you have said this to the creditor and they have recorded your phone conversations and/or letters, you risk not getting this particular debt discharged in the bankruptcy filing.
Another reason why creditors would settle is if you have given them enough proof that they will not be able to get anything from you. Even if he does bring the matter to the courts, he knows that you have no assets to liquidate your loan and as such would rather agree to settle the debt at the terms you can afford.
On the other side of the equation, what are some of the reasons why creditors won’t settle with you? First of all, they will find it extremely unusual if you suddenly tell them that you want to settle after a highly-satisfactory payment history. If you have paid your obligations on time, became delinquent for two months or so and appear on their door asking for a settlement, they will most likely reject it.
Creditors will also not agree to a debt settlement if they find out that you have been paying other creditors while leaving them out of the loop. They will know this when they ask for a copy of your credit report. The rationale for them to decline a settlement is that if you can afford to pay others, then you most certainly can pay them too.
More on Credit Repair through Debt Settlement (4 parts series)