Best Documentation is where Both Sides Sign an Agreement Confirming the Settlment Terms
If both sides are wiling to settle the debt, then both sides should be willing to sign a written settlement agreement with the terms. The company that owns the debt (either a debt collector or the original creditor) and the debtor should sign it showing their agreement and that once the final payment has been received, the company will consider the debt "settled in full" or similar words. It would only be "paid in full," if you have paid the entire balance due.
The formality of a signed settlement agreement is common when both sides are represented by lawyers. If the company has a lawyer, often they have a standard form agreement that they may insist you use, because they are accustomed to certain provisions. Read each term carefully before you sign, as these contracts can be one-sided and may give you no room for mistake, such as being a few days late or the regular mail not being delivered with your payment. Before you sign, ask questions or have a lawyer review the agreement.
Second Best: A Letter from the Company with the Terms Clearly Stated
More typical when each side is not represented by a lawyer is to have the company (debt collection agency or creditor) send the debtor a confirming letter with the terms clearly and correctly stated. Please review this letter carefully, as any errors that do not get resolved may be difficult to change later. If the letter does not state your agreement accurately or you believe that there are terms that should have been stated but were not, then you will want to send the company your own confirming letter, discussed in the next section. Have them send it to you by fax or email, and keep proof of its origin, including the envelope and fax cover sheet.
Third Best: (Your) Debtor's Letter to the Company with the Terms Clearly Stated
If the company does not send you a letter that confirms the settlement terms or they tell you that it is coming, but you need to make the payment now, or they send you a letter that contains errors or omitted key terms, you need to prepare and send your own confirming letter to the company. Be sure that your letter accurately shows the account number(s) and case number settled as the subject matter and that your letter has your name and current address and phone number. Your letter should be dated, hopefully the same date as you mail it. If you have their fax number, I would fax it and send it also by Certified Mail, return receipt requested.
Your letter should begin with the phrase "This will confirm our settlement agreement, as discussed with Mr. or Ms. XYZ, on Date." Then, clearly state the terms as agreed. The last line above your signature should state, "If anything in this letter is not as we had agreed or is not entirely acceptable, then please contact me immediately."
When the Initial Payment is Sent, Refer to the Settlement Agreement
Regardless of which documentation is used to confirm the settlement terms, when you send the initial payment (and subsequent payments, to be safe) to the company, send it by certified mail (return receipt requested) and keep a copy of your cover letter and the check or money order. Also, your cover letter should indicate that this is your "payment, per the settlement agreement, a copy of which is enclosed." Be sure to enclose a copy of the document. The cover letter should also state, "If anything in the enclosed settlement agreement is not acceptable, then you are not authorized to accept the enclosed check, but you must return it and explain any concerns. Keeping or depositing the enclosed check means that you have agreed to all of the terms on the enclosed agreement, without any reservations."
Recordkeepping and How Long to Save the Documents
Keep your settlement letters, settlement agreements, and copies of all payments together in a safe place with your permanent legal records.
I suggest hold these records at least 10 years, but 20 years is better, because these debts have a habit of coming back after you thought they were dead. Also, while the statute of limitations is not that long in California, what if you move to a state that has a much longer statute of limitations period? You might get sued, so you need to retain this documentation for many years.
Law Firms Who Pressure You to Immediately Authorize a Check by Phone or Credit Card Charge
While not fly-by-night operators, many lawyers who handle debt collection for large corporate clients have a bullpen of debt collectors, who negotiate the accounts and call the debtors and sound about the same as regular debt collectors. The difference is that their employer is a licensed law firm. If they are located in your State, they can sue you, have sued you, or may be about to sue you on the debt. They will remind you of this almost every other sentence on the phone to intimidate you into paying top dollar.
How to deal with this extra intimidation? Please follow my Settlement Guide #1 and do not agree to pay what you cannot afford, because if you miss a payment, then the likely outcome will be a court judgment against you for the full balance, less your payments. If they agree to settle with you, get it in writing before you send the payment. If time is short, have them fax or email written confirmation, so the terms are in writing.
What terms do you suggest for the settlement agreement? See Settlement Guide #3.
Actual terms is the subject of a separate legal guide which I have posted on Avvo.com. I call it "Debt Settlement Terms in a Box " Thanks for your comments on the usefulness of this legal guide, below.
Scam Warning: Debt Collection Agencies Who Have Nothing in Writing and No Real Address
There is a scam that low down debt collection agencies use, especially when they are fly-by-night operations: call and harass the consumer at home and at work and put nothing in writing. The Fair Debt Collection Practices Act requires an initial letter and other consumer protections, such as honesty and avoid harassment and abuse. Fly by night operators will harass you so badly, until you pay by phone or permit an electronic transfer, such as MoneyGram or Western Union. Or, they have a private mail box place for sending money orders.
You should ignore a fly-by-night operations or consult with a consumer lawyer or complain to the FTC or the Consumer Financial Protection Bureau. Any funds you send them are gone. They may try to keep calling you. Perhaps another company will call you for the same debt. Worse, if they get your checking or credit card account numbers, they may try to drain your account completely or run up your credit to the maximum, or take unauthorized amounts.
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