Question about settling an old debt

[AvisNovak]

Ok, so I'm on this rebuilding credit Facebook page and someone posts that they heard that if you write a check for $1 and write on the memo line "Negotiation of tender settles debt" and if they cash it they have accepted that your account is now paid in full. I have never heard of this and you know the old saying "if it sounds too good to be true it usually is" However, man I got slammed for even saying that and accused of being from a collection agency among other things. LOL I said that the memo line is not legally binding and basically for informational purposes only. I still think this is BS but thought I would ask here as I trust this forum a lot more than a Facebook group. I'm at 100 to 2 *me being one* that says this does work. There are moderators on the page but they seem to take a passive role in the group.

Why is the world would anyone file bankruptcy if they could just do this?

[justbroke]

Ah, the old "memo" line strategy. It may or may not work and you'd likely end up in court litigating whether or not the endorsement (on the other side of the check) was acknowledgement of the face of the check. Then you have lien issues if this is real property (or titled property). So you'd likely end up in court and your credit trashed anyhow.

Of course no one discusses anything but the old cases which went as high as a State's highest court. There is so much with your State's local precedence and how this "negotiation of the check" plays in local courts. There have been cases where it has worked (in Louisiana), but Louisiana is not an English common-law State. So what happened in Louisiana doesn't apply here in Florida.

Personally, *if* I were to use that strategy, I would first at least attempt a negotiation verbally so that at least there was a "negotiation" of sorts. Even in the Louisiana case (from 1963), the debtor asked about settling the debt before they actually wrote the endorsement requirements onto that check. Another fact in the Louisiana case is that the debtor also marked the invoice as paid-in-full and remitted both the marked invoice and the check. Even in the later 1983 case, with basically ratified the 1963 decision, the debtor had also sent a cover letter with the check stating that the check was in full satisfaction of the debt.

So I think it would pivot on the facts of the case. I think you'd end up in court. I think it's not as simple as it sounds and that State non-bankruptcy law specific to the State in which this occurs may be important. Even in the several cases in Louisiana, the appeals courts seem to rest on whether the creditor was "fully aware" that the check was in full satisfaction. in the case where it worked, there were other indicators (an accompanying invoice makred as paid in full, actual negotiations, a cover letter).

Bottom line is that it's a strategy, but whether it works in your State and/or the creditor's litigation State, is the bottom line question. Even for Louisiana, it may not be as simple as a "memo line" notation.

Expect litigation.

[AvisNovak]

So does doing that reset the statute of limitations? This person had six months to go until the 7 year SOL was up and then went a wrote a check for $2 *no clue why she picked two*. She actually didn't even write the check correctly. she put $2.00 and on the written part put "two----------------------" dollars... so two what? two dollars, two hundred, two thousand?

Also don't they have 60-90 days to dispute this and send the money back?

I also said that she didn't negotiate anything. All she did was negotiate with herself and negotiation is with at least two people.

[shipo]

Let's just say, for the sake of argument, the silly notion of clearing a debt by writing a check for say, $1.00, and including the words, "Negotiation of tender settles debt" on the memo line for say, a $20,000 debt, works and the creditor actually writes down $19,999 in debt. The first thing the successful debtor should then expect is a 1099-C in the mail from the creditor for that same $19,999; this in turn tells the IRS you effectively gained that amount in untaxed income, and then the IRS becomes a much bigger problem than the creditor.

[justbroke]

When it comes to collections, there the date of first delinquency (DOFD, as per the FCRA), and the State's statute of limitations (SOL). If the account is never brought "current" then the original DOFD should be used with respect to credit reporting. Whether or not a payment, which is either in full satisfaction or not, extends the SOL is a State specific question which I can't answer.

When I use the word "negotiate" it may be related to cashing a check (because the definition of cashing a check is actually presentment and negotiation). That's different from a negotiation on contract terms.

What I will say is that this doesn't work as easy as it sounds, and the only major cases on this are under Louisiana (civil) law. All the other States are English common-law and this strategy may not work as easy as it appears to have worked in Louisiana.

The first thing the successful debtor should then expect is a 1099-C in the mail from the creditor for that same $19,999; this in turn tells the IRS you effectively gained that amount in untaxed income, and then the IRS becomes a much bigger problem than the creditor.

This is the real problem with debt settlement. The IRS-1099C (Forgiveness of Debt) is a real issue and can create a tax liability which is even worse. The IRS is the type of creditor that you don't want to take collection activity on a debt. They are a super-creditor and can get to just about any property.

[AvisNovak]

Yes, I don't think they understand that they essentially have to pay taxes on that income they have had written off. Literally like 30 people said they were going to get checks written to all their collection and past-due accounts and send a check for $1. This is a disservice of this Facebook page to let posts like this just snowball into someone giving out information and not telling or knowing the "rest of the story" But they wouldn't listen to anyone tell them any different. You see people with a 515 credit score with tons of collection accounts that have not been paid and they want to know how to quickly up their score to 750 so they can buy a house in the next year. It's like the blind following the blind and falling into a sewer grate.

[justbroke]

I wish them luck. But disinformation is the name of the game today. We try to hold a certain standard here, but bad advice can creep in even when people mean the best.

While it may work for someone, there is no guarantee that it will work. Bankruptcy is the only guaranteed way to discharge a personal liability to pay a debt. Debt settlement has issues including negotiating the settlement.

I will add that for those that have a sub-400 score and owe many creditors, they're probably thinking what's the harm in the $1 check "in full payment" of the debt strategy.