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What should I include in a settlement agreement between me and the creditor?

Los Angeles, CA |

I am successfully negotiated with the creditor to settle my debt for less amount. I want to have the creditor sign a settlement agreement with me that after receive the settlement money from me all the debt between us will be consider paid for and they cannot come back and try to collect from me at a later time or sue me or things of that nature.What should I be including in that letter to make it more like legal paper and enforcable in case something happen in the future (beside my name, creditor's name and date)? After I sign and the creditor sign, do we need to notary it?

Attorney Answers 5


  1. The settlement agreement should include a release that has a waiver of California Civil Code section 1542.

    The settlement agreement need not be notarized.

    The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author (who is only admitted to practice law in the State of California). For specific advice about your particular situation, consult your own attorney.


  2. Title the document "Release." It should include that the creditor releases all known and unknown claims as of the date you enter this settlement. That means that going forward you could incur new debt, but the creditor is agreeing to release you from any claim that currently exists, whether they know about it or now. And the agree to waive CA Civil Code section 1542, which says that unknown claims are not released. If they waive that, then any unknown claims are released.

    There probably aren't any unknown claims, but apparently once there was in some transaction, so from that point on, all CA lawyers include this waiver just in case.

    You also need the creditor to warrant and represent that they own the debt being settled, haven't assigned it to anyone, have the legal capacity to enter into this release (and any individual signatory has been duly authorized y any entity they are acting for), and they agree to indemnify you if they breach these warranties.

    You might also onclude a clause that says that if any party breaches this release, the prevailing party in any dispiute gets their legal fees.

    You don't need to get this release notarized, but if for any reason you doubt the person you're dealing with and think there's a risk of them claiming their signature was forged and disavowing the release, then ask them to get their siganture notarized.

    PLEASE READ THIS BEFORE YOU COMMENT, EMAIL ME OR PHONE ME. I'm only licensed in CA. This answer doesn't make me your lawyer, and neither do follow-up comments and/or emails and/or phone calls, and you shouldn't expect me to respond to your further questions if you haven't hired me. We need an actual agreement confirmed in writing before any attorney-client relationship is formed. This answer doesn't constitute legal advice, and shouldn't be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.


  3. Notarization os not important. You need a release and promises from them in the future that they will not ccollect or report to credit reporting agencies.

    Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship.


  4. I agree with all of the other attorneys IF this were virtually any other type of dispute.
    Because debt collection can live on and on and on and future parties may in fact try to collect this debt or part of it, I would ask solely that they agree in writing that your payment of X is to be considered payment in full of the account in question and forever "extinguish" the debt.

    I would also ask that they agree not to "re-sell" the account to any other party. Keep ALL records, so, that when this debt shows up again somewhere, you have a potential new lawsuit for unfair debt collection and/or unfair credit reporting against this creditor, the future creditor(s) and/or the big three credit reporting agencies...


  5. I agree with all the other attorneys. I recommend that you make sure that whoever signs the "Settlement and Release" has the authority to bind the company. Include language in the "Settlement and Release" that "Each person signing this Settlement Agreement/Release on behalf of XXX Company represents and warrants that he or she is duly authorized by XXX Company to do so and that XXX Company acknowledges that the Settlement Agreement/Release is a valid and legal agreement binding on XXX Company, its successors and assigns, and is enforceable in accordance with its terms."