Informal Negotiation with Creditors

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What Is Informal Negotiation?

Informal negotiation involves approaching your creditors directly (or through a debt adviser) to reach a voluntary agreement on how your debts will be managed. This might involve reduced monthly payments, a temporary payment break, a full and final settlement at a reduced figure, or a freeze on interest and charges.

Informal arrangements are not governed by legislation and do not appear on any statutory insolvency register. There is no formal process and no guaranteed outcome.

Types of Informal Arrangement

• Reduced payment agreement: You agree to pay a lower monthly amount than originally contracted. The creditor may or may not freeze interest.
• Full and final settlement: If you have access to a lump sum (perhaps from a family member), you may be able to offer a creditor less than the full balance to settle the debt entirely. This can result in significant write-offs in the right circumstances.
• Payment break (breathing space): Some creditors will agree to a short payment holiday if you are facing a temporary difficulty.
• Token payment arrangement: Where income is very low, some creditors will accept a nominal payment (such as £1 per month) while your circumstances are reviewed.

Advantages of Informal Negotiation

• No formal insolvency record on the Register of Insolvencies
• No professional restrictions
• Flexible - arrangements can be tailored to individual creditors
• Can be quicker to set up than a formal solution
• May preserve relationships with individual creditors

When Might Informal Negotiation Work?

Informal negotiation is most likely to succeed when you have a small number of creditors, your debts are relatively manageable, you have a temporary problem rather than a long-term affordability issue, or you have access to a lump sum for settlement. For ongoing unmanageable debt with multiple creditors, a formal solution will typically offer better protection and certainty.

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