NEGOTIATING settlements of unsecured debts with creditors can be challenging, but the best thing you can do if you are struggling with debts is to not ignore them

Settlement is usually agreed when both parties have fully understood their financial and legal positions and have valued them accordingly.

This can be complicated to assess, as dealing with the settlement of unsecured debt involves commercial bargaining, provisions under the Consumer Credit Act and its regulations, Office of Fair Trading rules and a judgement about the likelihood of legal enforcement.

The first thing to decide is how you wish to go about it - and there are a few options:
1. You can go to Citizens Advice Bureaux
2. You can use a professional adviser
3. You can attempt to do it yourself

What are the pro’s and cons of each?
CABs are free and are full of committed hardworking advisers who will have your best interests at heart. But as the recent White Paper on Consumer Law acknowledged, their services are in such demand, that it may take some time to get an appointment and the level of attention that they are able to devote to any case, is limited.

Using professional advisers can be a sensible route. Remember though that you should not pay fees upfront. The OFT has warned debtors to be wary of firms trying to get you to pay upfront fees for reviews of your credit card agreements, ideally you should use firms charging success fees only.

Doing it yourself is free and if you have the time can be the cheapest option in terms of fees - although not necessarily the best settlement outcome.

There was a famous case of a lawyer acting for himself in an action – the case went on appeal from the initial judgement (where he won) to the Court of Appeal (where he lost) to the House of Lords (where he won) to the Privy Council (where he lost). The moral of the story is that where a lawyer acts for himself, he has a fool for a client. Doing it yourself will invariably mean that you lack having an objective adviser, even if you fully understand the law.

However, if you wish to use this approach, where then do you start if you want to do it yourself?
First, you need to consider who is your creditor and how long have you had the credit agreement? If your creditor is a debt purchase company who has purchased your debt from a bank or credit card company, they will probably have done so for between 5-20p in the pound. They may or may not have an assignor who is willing or able either to find the original Credit Agreement - which they will need to do if you make a request under Section 77 or Section 78 of the Consumer Credit Act - or if they are unable to find it, would be willing to go to the effort of reconstructing a true copy.

A creditor unable to produce a true copy of your original agreement will have considerable problem enforcing – and while it is difficult to use this fact to obtain a Court ruling that the debt is unenforceable, it is nonetheless most helpful in bargaining.

The age of the debt is also important and not just because there is a different treatment of Agreements signed before April 2007. The age of the debt and the status of legal proceedings will go to the creditor valuing the debt and accordingly valuing a settlement.

Where a debt is old and the financial institution has already provisioned it, they are more likely to agree a lesser settlement. Provisioning policy will vary from one financial institution to another and may depend on how they “age” the debt.

If however the creditor has supplied the Agreement, then its review for CCA compliance is important – especially ensuring that it is fully compliant with Schedule 6.

There are a range of other regulatory and legal issues – and here is a sample of them:
• Has the debt collector breached OFT Rule 664? And will that assist the bargaining position?
• Is there a fraudulent PPI sale and what does that mean for the enforceablility of interest?
• Has there been a failure to send Arrears Notices, has the Default Notice been deficient or has there been other similar regulatory breaches?

Finally, once you have assessed the legal and compliance position, you will need to consider what you can offer and what they will accept.

David Bloom BSc. LLB, LLM (Hons.) (Cantab.) is founder of David and Goliath Debt Advice and is a  former CEO of a Credit Card company.