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The liquidation of debt is a situation in which a creditor and the debtor is able to reach an agreement to enforce a debt outstanding for less than the current amount of debt. Creditors can choose to follow this path when economic downturns make the debtor can not pay the amounts due. Sometimes referred to as debt negotiation or debt arbitration, the primary function of the debt settlement is to avoid costly legal fees and procedures developed while allowing the debtor to quickly reduce the number of obligations he or she is trying to manage. The use of debt to eliminate the debt overhang is a great help to the debtor.