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What Happens if You Don't Pay a Debt Settlement?

Dena Standley | January 31, 2023

Dena Standley
Legal Expert, Paralegal
Dena Standley, BA

Dena Standley is a seasoned paralegal with more than 20 years of experience in legal research and writing, having received a certification as a Legal Assistant/Paralegal from Southern Technical College.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

It's best to keep your debt settlement agreement.

Summary: It is possible to cancel a debt settlement agreement by failing to pay the agreed amount. However, depending on the terms of the contract, not paying the settlement can lead to other significant consequences, including penalties and fees. You would also go back to square one concerning debt and defaulted accounts. SoloSettle can help you settle your debt for less by yourself.

You can have a justifiable reason for not paying a debt settlement payment. You may have earned enough money through a job promotion or inheritance and prefer to pay your debt in full. That would appeal to you because an account marked “paid in full” is better than one marked as “settled.”

On the other hand, you may face more financial difficulties and therefore be incapable of paying the settlement. Whatever the reason, not honoring your settlement agreement has its drawbacks.

In this article, we will discuss the adverse outcomes of not paying a debt settlement and help you to make the right decision.

What are the consequences of not paying a debt settlement?

Consumers go about debt settlement in different ways. Some do it themselves, while others hire debt settlement or debt relief companies.

Your debt settlement method will affect what happens if you stop payments. For example, if you negotiated settlements with creditors or debt collectors directly, canceling the agreement will involve you and the creditor/debt collectors. However, if you are using a debt relief company, you will have to notify them, too.

Whether you or a debt management company negotiated the settlement, expect to deal with the following issues.

  • Your debts do not go away, and you can expect to start dealing with creditors or debt collectors again.
  • You may find yourself facing higher interest rates on the debts.
  • Penalties and fees will start to accrue again.
  • Stopping payments toward debt settlement can result in even more damage to your credit.
  • Late fees will be reinstated.

Let us look closer at each of these repercussions.

Your debts will not go away

You originally signed a debt settlement agreement to get out of debt. But now that you have not paid the settlement amount, you are back to square one. If your creditors agreed to accept a lower total, they could reinstate the original amount if you break the agreement.

If you use a debt relief program, you may lose a portion of the money you already paid to them for their services.

Your interest rates will jump back up

One of the advantages of debt settlement is that the creditors often agree to lower your interest rates. So if you cannot honor the contract, your creditor will likely reinstate the initial high-interest rates you were unable to keep up with in the first place.

You can try to renegotiate better rates, but it is not very likely that they will negotiate with you after failing to fulfill the first settlement contract.


When you sign a Debt Settlement Agreement, you agree to the terms of the document. Consequently, you may face penalties for not paying the settlement as stated in the contract. For example, a creditor may let you settle for less than you owe but stipulate that failure to keep your end of the bargain would incur certain costs. In that case, you would have to pay for breaking the contract.

Another standard penalty for using a debt relief company is non-refundable fees you agree to pay voluntarily.

Failure to complete a debt settlement could further damage your credit

By the time you opt for debt settlement, your credit has typically already taken a serious hit. But not paying a debt settlement agreement is a sure way to damage it further. Not only are all the late repayments reported to your report, but you have increased the number of months in default.

Get ready to handle debt collection calls and letters once again

Likely, the collection calls stopped after you negotiated and agreed to a settlement offer. But if the pay-by-date on the contract goes by and you do not pay, your creditor may automatically cancel the agreement and start pursuing you for payment.

It is always a great idea to let the creditor know that you plan on not paying the debt settlement. They may accept your proposal to change the terms of the initial contract. However, the calls will resume if you cannot convince them to work with you under new terms.

Respond to debt collection letters.

Your creditor may reinstate forgiven late fees

One attractive aspect of debt settlement is that creditors usually agree to cancel late fees. The idea is to help you get rid of debt faster. Failing to pay the settlement amount puts you at the mercy of your creditors, who will most likely require that you pay any fees the contract had forgiven.

You could be facing a lawsuit

A debt settlement contract is legally binding. You should not worry about a lawsuit if you break your debt settlement agreement by paying it off early.

If your financial circumstances have changed and you cannot meet the terms of the agreement, creditors may decide to file a lawsuit against you. If you receive a Summons and Complaint notifying you that you have been sued, file an Answer as soon as possible. Filing the Answer prevents a default judgment against you and buys you time to figure out what you need to do next.

What should you do if you cannot pay a debt settlement?

Life is not perfect. You may fail to pay a debt settlement even with the best intentions. If you are facing such a situation, here is what you can do.

  • Talk to your creditors at the earliest opportunity.
  • Carefully reread the contract you signed and consider the consequences of not paying.
  • If you hired a debt relief company, inform them of your decision as soon as possible.
  • Evaluate your situation and set up a new repayment plan fast.
  • Reduce your reliance on debt.

Like all other settlement agreements, a debt settlement agreement is legally binding—failure to pay amounts to a breach of contract. So you should expect to deal with the repercussions.

Follow these 3 steps to settle your debt

If you are being sued for a debt you owe, you can reach out to the creditor or debt collector to discuss settling the debt during any stage of the debt lawsuit process. Follow these three steps:

  1. Draft and file an Answer to the debt lawsuit.
  2. Send a debt settlement offer to kickstart negotiations.
  3. Get the debt settlement agreement in writing.

SoloSettle can help with all three steps and more. Keep reading to learn more, or check out this video:

Use SoloSettle to settle your debts for good

SoloSettle makes the debt settlement process simple and fast.

SoloSettle, powered by SoloSuit, is a tech-driven approach to debt settlement. Our software sends and receives automated debt settlement offers on your behalf. This means you don’t even have to deal with creditors and collectors directly.

When you reach a settlement agreement, SoloSettle helps you manage the debt settlement documentation and transfers your payment for you. This keeps your financial information safe and secure.

Let’s take a look at an example.

Example: Brandon is being sued by Portfolio Recovery Associates for an old credit card debt of $6,000. He uses SoloSuit to draft and file an Answer to the lawsuit, giving himself time to consider a debt settlement plan. Next, he takes a close look at his finances and determines how much he can afford to pay off now. He decides he can pay $4,500 which is 75% of the original debt amount. Bandon uses SoloSettle to send a settlement offer to Portfolio Recovery Associates, starting low at 40%, or $2,400. After several counteroffers and rounds of negotiating, they reach an agreement at 60% of the debt, or $3,600. Brandon saves thousands of dollars, get the debt cleared, avoids going to court, and gives himself a financial reset.

Check out this review from a real SoloSettle customer:

“I'm very thankful for SoloSettle.. Having a third party negotiate the settlement was instrumental in resolving this case and saved me from two giant headaches: 1) I didn't have to deal with the plaintiff's lawyer and 2) I didn't have to go to court. I also love that the payment was processed through SoloSettle. I was nervous about sharing my personal financial data with the other side, but SoloSettle protected that for me. I hope I never get sued again, but if I do, I would use SoloSettle again in a heartbeat.

SoloSettle really saved me a ton of time and heartburn and kept me from having to be my own lawyer in court.”

What is SoloSuit?

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You can use SoloSuit to respond to a debt lawsuit, to send letters to collectors, and even to settle a debt.

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