You’ve Settled, Now What?

Let’s say you have negotiated a settlement with a creditor. What should you include to help ensure that your credit is the best it can be?

First, under the Fair Credit Reporting Act (the “FCRA”), a creditor is not required to report anything, but what it does choose to report, must be accurate.

So this leaves the door open to ask for a trade line deletion. This means that the account won’t show up at all – no late pays, no delinquencies, and no language such as “settled for less than owed”. This is the best outcome, particularly if you have other accounts elsewhere with a positive history. Many original creditors won’t agree to this but if you can point to some kind of error on their part, you’ll be more successful in having the trade line deleted.

How to reflect this in the settlement docs: include a provision that the creditor will not report this debt to the credit reporting agencies.

If the trade line is reporting and cannot be deleted, you at least want a provision that the creditor will report the balance and payments in compliance with the new contractual terms. Technically, this should not be required, because by law it is already required under the FCRA. It’s both a breach of contract and a violation of the FCRA not to update your credit to reflect the new arrangement.

Always keep track of your payments and keep proof that payments were timely made.

Finally, remember that any student loan debt settled and paid before the end of December 2025 will be tax free.  In other words, you will not receive a 1099-C for the cancelled debt.  For all other debt, either non-student loan debt, or student loans settled after the end of 2025, leave some room in negotiations for a tax bill on the forgiveness.

If you need help negotiating a debt, please consider talking with us.  And if you’ve already settled, but are running into problems with the debt being reported inaccurately, or collection calls still coming, please talk with us.  You have options and the creditors end up paying all the attorney’s fees if they violate our collections laws.