A settlement is a process of correcting a negative balance.
Therefore, if a user has a negative amount in their wallet, Bitfinex would take a currency with a positive balance and exchange (at market rate) with a currency that has a negative balance.
For example, if a user completes a trade and Bitfinex charges a trading fee of 0.1 BTC, but the user only has US dollars in their wallet and no BTC. Bitfinex will then settle the charge by converting the necessary USD available in the trader’s account into BTC. To make this conversion, the rate used is the last ask price (if Bitfinex settles a negative BTC balance) or bid price (if Bitfinex settles a negative USD balance).
The currency primarily preferred to settle the negative balance will be chosen based on when it was added on Bitfinex; the older currencies will be used first to settle negative balances. Although, the tokens which have been applied a haircut will be used last, regardless of when they were added to Bitfinex, while some currencies which are considered high risk and have high haircuts will not settle any negative balances.
The respective haircuts applied to the currencies are regularly updated and can be checked by clicking on the collateral info tab under the summary of your trading page.
Note: A negative balance on your account would prevent you from withdrawing any funds out of Bitfinex. Additionally, a negative balance that is greater than 50 USD, will prevent you from transferring funds out of your margin wallet until it has been settled.