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A debt settlement agreement is used to formalize the renegotiation between a debtor and creditor. It typically reduces or eliminates the original amount of debt, allowing the creditor to forgive part of it and release the debtor from any remaining obligations. This settlement often occurs after the debtor makes a final payment. Following the execution of the agreement, the creditor must remove all obligations of the debtor under the original contract and agrees to refrain from pursuing any legal action against the debtor related to the original agreement.