Debt Settlement * Paying a Creditor * Collection Agency * Debt Negotiation * Paying Your Debt

All of our debt settlement secrets in an easy-to-read book - Only $19.95! Don't use a shady debt consolidation/settlement/negotiation company when you can do it yourself!

Paying Your Settlements - Can You be Sued by a Creditor After Your Debt is Settled?

Part 3 in our Debt Settlement Series

Last Updated: July 27, 2011

Note: This page addresses debts which are with a COLLECTION AGENCY ONLY. For debts still with ORIGINAL CREDITORS, go here.

Settling your debt is not an easy task and hopefully the two previous articles in our Debt Settlement Series, "Understanding the Principles of Settling Debts" and "Negotiate Your Credit Rating" have been helpful. Up to this point, you have been in contact with the collection agencies and you have been successful in negotiating and settling your debts. Now comes the most important part of the entire process, paying your creditors. This is a crutial part of the entire process and this is where you need to be the most careful in how your pay, who you pay, and knowing what will happen next.

Tips on Paying Your Debts Once Settled

Never Disclose Where You Work or Bank.
If you are asked, simply say "no comment". The reason: If your settlement falls through, and the creditor gets a judgment against you, knowing where you bank or work will make it easy to collect the judgement.

Never Pay Your Settlements With a Personal Check.
How you make payments is very important, as it protects you from other creditors learning about your financial status and bank account numbers. For this reason, never send a personal check. Get a cashier's check or money order. Make sure you get the money order or cashier's check from a different bank than your own bank or the post office.

Keep a Copy of Your Money Order or Cashier's Check and Put it Somewhere Safe.
Collection agencies keep notoriously bad records and it's your word against theirs if you say you paid and they said you didn't...unless you have the copy of the money order or cashier's check.

If You Negotiated a Settlement for Less Than You Owed, Can the Creditor Sue You For the Balance?

Yes! You need to read the following information carefully.

Some collection agencies will agree to settle with you for far less than you owe and then turn around and hire another collection agency to collect the difference. However, in many states this is illegal. Once a creditor deposits or cashes your check, even if they strikes out the words "payment in full" and writes "I don't agree" on the check, they can't come after you for the balance. The states in which this law is enforced:

• Arkansas
• Colorado
• Connecticut
• Georgia
• Kansas
• Louisiana
• Maine
• Michigan
• Nebraska
• New Jersey
• North Carolina
• Oregon
• Pennsylvania
• Texas
• Utah
• Vermont
• Virginia
• Washington
• Wyoming

Some states have modified this law. In the following states, if a creditor cashes a full payment check and explicitly retains his right to sue you by writing "under protest" or "without prejudice" with their endorsement, they can come after you for the balance. But those exact words must be used. If they write "without recourse", communicates with you separately, notifies you verbally, or writes on the check this is "partial payment", it is not enough.

• Alabama
• Delaware
• Massachusetts
• Minnesota
• Missouri
• New Hampshire
• New York
• Ohio
• Rhode Island
• South Carolina
• South Dakota
• West Virginia
• Wisconsin

Californians Get a Break Due to a Legal Loophole

California lets creditors cross out the full payment language and sue you for the balance. However, when they passed this law, they also passed a separate law allowing California debtors to get around it. (Don't ask me why). Getting around this law requires specific steps and language. To use it, this procedure must be followed exactly.

Here is the procedure and the sample letters.

Articles in Our Debt Settlement Series:

1. Understanding the Principals of Settling Debts
2. Negotiate Your Credit Rating
3. Paying Your Settlements
4. Actual Debt Negotiation Success Stories
5. What's the difference between debt negotiation and debt settlement?
6. Handling Debt Stress

Get a FREE Credit Consultation & Credit Score! Fill out the form below and an experienced paralegal from Lexington Law will call you in a matter of minutes!   First Name: Last Name: Phone Number: -- E-mail: Zip Code: I request and grant my consent to be contacted by telephone and/or email regarding credit repair. Submitting my personal information above constitutes my electronic signature.