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Restricting terms in settling
bad debts
We have many articles on this issue so be sure to research our credit
library. Before using a restrictive
endorsement agreement, check with your State
Attorney General, or a local
attorney to see if this type of agreement is binding in your
state and county. State laws vary.
If you have an old debt or a charged off debt being pursued, the
biggest mistake you may ever make is simply paying it! The reason
is because once the debt is delinquent or written off, it has already
landed on your credit
reports in a very negative way. By paying it after the fact,
the creditor/collector will get his money but you will still end
up with a 'paid charge off" on your credit reports. The older
the debt is the better your chance to settle
the debt for way less and for an improved rating on your credit
reports. This is because the debt has already been considered uncollectable
and the creditor figures you may file bankruptcy
or simply never pay. This puts you in a very favorable position
to negotiate.
What is a Restrictive Endorsement
When a creditor accepts payment with a restrictive
endorsement, a legal
agreement is binding your creditor to the terms specified on
the payment instrument. Why use a restrictive endorsement agreement?
Most creditors are happy to receive any form of payment; after all,
this is why they are in business. To understand why this method
works so well, put yourself in the position of a collection agency
or creditor who received payment with a restrictive endorsement.
First, you may be a position to receive a commission for the recovered
funds. Second, you may feel no obligation to follow through with
the terms in the letter.
Odds are, your payment will be accepted without any reservations.
In some states, a restrictive endorsement
may not hold up. I.E.:creditor had the right to full funds and
was cashing the payment that you owed. It is always best to send
the agreement first, give the creditor time to object and then send
your payment with a copy of the first letter. Do not send payments
to lock boxes. Those will be processed as usual. Send it directly
to the credit manager.
When to use a restrictive endorsement agreement?
As a general rule, mortgage lenders will not honor this form of
payment nor will most creditors for secured debts where there is
collateral involved. Unsecured debts are usually the target. This
method is generally most effective with older accounts that have
been turned over to collections. It will work however, with newer
accounts if the collector "perceives" the account may
be difficult to recover. Collection agencies only profit if they
have successfully collected funds for their client. If your account
has already been turned over for collections, the original creditor
was unsuccessful after sending a series of demand letters. In most
cases, if the account is older than one year, your creditor "wrote"
off the balance as bad debt and reported your debt as a financial
loss. In this scenario, a restrictive endorsement is recommended.
Your creditor has lost all hopes of keeping you as a customer and
any funds they collect at this stage are considered a different
kettle of fish.
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SCENARIO OF BACK
OF THE CHECK
By accepting these funds,
you hereby agree that this account is paid in full without
protest and that you will remove this account with each credit
bureau that you submit to. Your cashing of this check constitutes
you have agreed to my offer. No collection activity may be
attempted any further and my credit reports will reflect this
change.
Creditor endorsement area
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The FOLLOWING VERBIAGE MUST BE WRITTEN ON THE
ACTUAL PAYMENT INSTRUMENT. Even if you shorten it, make sure
the necessary wording of settlement and restrictive are on the back
of the check above where the person would endorse it. We recommend
a Cashiers Check from your local bank or credit union...as you can
have them copy the check after it has been processed and returned
to the bank. Keep a copy!!!!
By sending a check with this verbiage, you are
offering in no uncertain terms to settle the debt and be done with
it permanently. If the creditor cashes the check knowing it has
a restrictive endorsement on the back, they have to abide by terms.
Some creditors may write on the back 'Cashed under protest"
so that they can continue to collect the balance. To avoid this,
make sure you send an offer
in compromise letter first and once they agree in writing,
you send this letter above. We don't recommend that you arbitrarily
send a check like this until you have gotten the creditor to agree
prior. Doing so may jeopardize your position.
Some courts see a restrictive offer as nothing
more than paying part of a debt you owe while other courts consider
for a restrictive offer to be enforceable, there must be an offer,
an acceptance of that offer, and some consideration. In the settlement
of a legal dispute, the agreement to settle is called an "accord."
Actual exchange of the consideration is called a "satisfaction."
Thus, Accord
& Satisfaction.
Finally always be sure you are cautious when
dealing with collection
agencies. You should verify the negative item to the credit
bureaus first and if verified as accurate then request a VOD.
However don't ignore any collection notice you receive because by
law you have 30 days to lodge
your dispute with the collection agency. You will want to send
your VOD ASAP in that scenario. Once you have determined that the
debt is absolutely legitimate then you can begin to negotiate
using restrictive endorsements to create a new accord
and satisfaction. This method is extremely powerful.
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