Debt settlement is a legal process of debt reduction in which the creditor and debtor agree on a reduced balance that, once settled, will be regarded as payment in full. Typically, receiving a settlement for 25% - 50% of the original balance is considered a good settlement. However, every creditor and debtor's situation is unique as some may be more than willing to negotiate for lower percentages than others. Furthermore, settling your derogatory debt is an excellent option when you want to avoid filing bankruptcy.
Creditors are often more willing to reach settlements with debtors as opposed to forcing them into filing for bankruptcy. Once a debtor has filed bankruptcy it is highly unlikely that the creditor will receive any portion of the balance that is owed to them. Therefore, creditors are better off negotiating for a percentage of the balance owed as opposed to nothing.