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A debt settlement agreement formalizes the renegotiation of terms between a debtor and a creditor. It typically reduces or eliminates the original debt amount and allows the creditor to forgive part of the debt, releasing the debtor from remaining obligations. This process usually occurs after the debtor makes a final payment post-agreement. The creditor is expected to remove any obligations from the original contract and forgo pursuing any legal action against the debtor related to the original agreement.