Can Creditor Sue After Negotiating and Settling Your Debt

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Settling your debt is not an easy task and hopefully, some of our debt settlement articles have been helpful. Up to this point, you have been in contact with the collection agency and you have been successful in negotiating down your debt. Now comes the most important part of the entire process, paying them. This is a crucial part of the entire process and this is where you need to be the most careful in how you pay, who you pay, and knowing what will happen next.

Can You Be Sued After You Settle Your Debt?

Yes, if you don’t protect yourself during and after the settlement. You need to get a written agreement with the collection agency saying the amount being paid is considered payment in full.

Tips on Paying Your Debt After It’s Settled

Can You be Sued by a Creditor After You Have Settled the Debt

Never Disclose Where You Work or Bank
If you are asked, refuse to give out this info. Why? 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 on the judgment. In addition, this is none of their business and not relevant to the matter at hand.

Never Pay Your Settlements With a Personal Check
How you pay them is very important. If you pay via personal check, you have just given your creditor complete banking information. 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. This may sound a bit paranoid, but better to be safe than sorry.

Keep a Copy of the Money Order or Cashier’s Check 
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 strike 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 where this law is enforced:


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

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


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. 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.

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