Where a defendant cannot pay in a lump sum, the settlement’s value depends
entirely on the security and the default mechanics.
Payment schedule. Amounts, dates and method, with interest stated. Whether
the total reflects a discount for present value or a premium for the extended
term.
Security. A confession of judgment or a stipulated judgment held in escrow
for the full amount less payments made; a mortgage or security interest; a
personal guaranty; a letter of credit; or an escrow of assets.
Acceleration on default. With a short notice and cure period, since a
provision that accelerates on a payment missed by a day produces motions to
vacate and sympathetic courts.
Credit for payments made. The stipulated judgment should be for the full
settled amount or for the original claim amount less payments — the latter is
common where the settlement discounted the claim, and it is a significant
negotiating point.
Financial covenants where the payer is a business: restrictions on
distributions, on new debt and on asset sales while the obligation is
outstanding, with reporting.
Bankruptcy risk. Payments received within the preference period are
recoverable, and security perfected at settlement rather than at the time of the
original obligation may itself be avoidable.
