QUESTION

I recently read an article which stated the following, in relation to settling outstanding debt.

If you send one of your creditors a cheque, and write on the reverse "ACCEPTED IN FULL AND FINAL SETTLEMENT OF ACCOUNT NUMBER (insert)", and the creditor cashed the cheque, then they are in fact accepting your cheque as a settlement of the outstanding debt, even if the cheque is lower than the outstanding amount.

Apart from appearing completely ludicrous, is there any truth in the above?

Reply

Can you send a cheque for £10 to settle a debt for £4,000 and expect to clear the debt as the creditor had cashed the cheque (check) you had written with "ACCEPTED IN FULL AND FINAL SETTLEMENT OF ACCOUNT NUMBER 12345"? No. It would not be 'reasonable' to expect such a small payment to settle a large balance. Further, the creditor has never given written or verbal agreement to the reduction. Should a creditor return your properly due payment? I think not: I would argue, in court if necessary, that the debtor owed me money and I was not about to send it back.

If I were the creditor I would say thank you for your £10, this now reduces your balance to £3,990. If the debt was £20, it would be 'reasonable', but the creditor should/could/would say that they did not look on the back of the cheque! And, I want the other £10.

If a debtor sent a letter, accompanying the cheque, saying that the cheque should only be accepted and cashed in full and final settlement you do have to look more closely at what the circumstances are: but silly offers are still silly offers. A letter from a solicitor would never contain an unsolicited settlement amount and cheque - they will ALWAYS get a written, or as a minimum a verbal, agreement to any reduction: this is the only way to settle for less than the full debt.

Finally, I have personally been to court (as a creditor) in this situation between 3 - 5 times in the past 20 years and have always had the courts backing. Trying to be clever with the law, and it's administrators, is not recommended. Picture a clever debtor being asked by a judge, "so why did you expect to pay so little, and expect the creditor accept so little?". Embarrassing!

Many thanks to Colin Duguid of Debt 24.com who is taking the time to provide this information as a service to homeworkers.