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Can I settle for less after a judgment is issued against me?

Madison, WI |

I have a judgment against me for a school bill that was not paid. I am looking to take care of it now, but the lawyer is not responding to my requests for a current balance. I have had my state tax returns held to pay parts of this debt for the past 2 years. One time I spoke directly with the lawyer on the phone and he said he would get back to me in a couple days. He has yet to return my calls, or emails since then. That was 2 weeks ago.

2 questions here.
Can I settle for less or negotiate a pay in full amount?
Is it legal for the lawyer to ignore my requests for a current balance owed and for him to ensure that I received proper balance credit for my returns being held?

Mr. Corbin, I appreciate your quick response! He has yet to actually refuse to provide the information verbally, but do his actions, the fact that he is no longer responding count as refusal? I plan on sending a registered letter today, if that does NOT get a response what should my next step be? The debt is relatively small (under $2000).

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Attorney answers 3

Best Answer

Yes, you can settle for less if you negotiate an agreement. As for your second question, it is technically illegal for an agent of a creditor to refuse to provide basic account information - send him a registered letter demanding the current balance and an accounting of all charges. Make sure everything you do is in writing so you can challenge it later - simply talking on the phone doesn't prove anything.


Yes, you may negotiate to pay less than the judgment amount. Indeed, many times such a settlement is done to avoid the running of post-judgment interest. Good luck.


Can you enter into an agreement with the judgment creditor to pay a reduced amount in installments or a reduced amount in one lump sum payment? Yes, but only at the option of the judgment creditor. You cannot force the judgment creditor to accept less than the entire balance of the judgment, plus interest from the date the judgment was entered at 12% per year. Most judgment creditors are more likely to accept a lump sum payment on a discounted balance than installment payments on a discounted balance. Obviously, that requires some access to cash, but income tax refund time is around the corner and may provide you with that opportunity.

Be aware, however, that it is likely that upon final payment of the amount of any discounted judgment, that the judgment creditor will send you a 1099 for the forgiveness of debt income generated by the settlement. The IRS treats the unpaid portion of a forgiven debt as income to you and will assess income tax on it. For example, if you were to settle a $10,000.00 for $5,000.00, the creditor could send you a 1099 for the forgiven debt and the IRS would expect you to pay income taxes at the end of that year as though you made an additional $5,000.00 in income. You should consider the income tax consequences of forgiven debt any time you consider settling a debt for less than the full amount of the debt.

Also, if you succeed in getting an agreement on a discounted payment and you fully pay that amount according to the terms of your agreement with the judgment creditor, be sure to request a signed original of the Full Satisfaction of Judgment from the judgment creditor in exchange for your last payment or promptly thereafter. Despite paying a judgment in full, it will still show as a public record on your credit report until it is satisfied by filing a Satisfaction of Judgment form with the clerk of courts for the county in which the judgment was entered. The judgment creditor (or its attorney) needs to sign the satisfaction form.

Is it legal for a lawyer to ignore your request for a curent balance? Yes. There is no state or federal law that I know of that compels a creditor or its attorney to give a current balance upon your request. It's certainly an uncommon problem, considering most creditors want to be paid and make the process of you paying them as easy as possible. I would contact the actual creditor, not its attorney, and explain that you have been trying to get a payoff statement from their attorney but have been unable to. I suspect you'll get a payoff statement in the mail from the creditor's attorney soon thereafter.



Mr Payne, Thank you for sharing your expertise on this forum. I'm a law student at UW enrolled in a Basic Income Tax class, and this week we are covering Discharge of Indebtedness. We had a class discussion today where the question came up regarding whether the settlement of a money judgment for less than the full value of judgment would be covered by the "disputed debt doctrine" and thus not recognized as income or whether it would be income similar to that realized when a debtor repurchases debt at less than face value. Your answer strongly suggests the latter would apply, but I have been unable to find a case or regulation directly on point. Given your experience I was hoping you might be able to provide one off the top of your head. Many Thanks Tor J

Benjamin Patrick Payne

Benjamin Patrick Payne


Caveat: I consider myself a bankruptcy lawyer; I only know enough about tax law to make sure my clients have an independent tax professional advising them on the tax consequences of the work I do. That said, I think the issue in your hypothetical would be whether the "dispute" was a "bona fide" dispute over liability for the claim or the amount owed. Your hypothetical assumed the judgment had already been entered, which probably elimiates any possibility of a plausible "bona fide" challenge to liabilty or the extent of it. If the judgment were a default judgment, however, a creative judgment debtor might move to reopoen the underlying case and make an argument for vacating the judgment based on lack of proper service of process, excusable neglect, or some other grounds for requesting relief from the judgment. If the court agrees to repoen the case, the debtor could propose entering into a settlement agreement with the judgment creditor including language citing the bona fides of the dispute over liability or the extent of it. That way the debtor/taxpayer has a solid defense in the event the creditor issues a 1099 on account of the "discount" given in the settlement, because the IRS will presume that the 1099 income is taxable and will likely issue an assessment for it. If the matter was actually litigated (defended) by the debtor, I can't imagine an exception to the forgiveness of debt treatment of a discounted settlement on the judgment. On an unrelated note, you've got a rare and very valuable kind of enthusiasm for the law. No one can teach that, you have to have it inately and you appear to. Regardless of the grades you pull in law school, you have the makings of a great lawyer. Keep it up.