The all-important settlement agreement
The "gag order" part of the debt settlement agreement matters as much as the payoff amount
Some people in debt are going to insist on settling a debt collection case on their own — without the help of legal counsel. If the case is a small value and impractical to add on legal fees, this makes sense. Either way, that person should keep the following tips in mind in regard to a settlement agreement.
Insist on a written settlement agreement
Some outfits will just want to take your debt collection payment over the phone and tell you that everything’s okay. It’s not okay. You want a piece of paper signed by both parties (you and the creditor or its attorney) saying that the case is over forever.
The settlement agreement should state the following:
The case number and jurisdiction of the lawsuit
The creditor (If the lawsuit is by a debt-buyer, it should identify both the debt-buyer that is suing you and the original creditor.)
The agreement should require the plaintiff/creditor to dismiss the lawsuit with prejudice immediately upon you having paid the settlement amount.
Here’s what else the settlement agreement should specify.
The credit agency’s role in the settlement
The debt collection settlement agreement should require the creditor to report the settled-in-full status to the credit reporting agencies. Keep in mind that creditors only have the obligation to report the settlement and payment to the credit agencies. What the credit agencies do with that information is beyond the control of the creditors.
The agreement should state that the settlement is the result of a contested liability and that it is not a debt being forgiven by the creditor. You don’t want to have to pay taxes on any forgiven debt.
Finally, any debt collection settlement agreement provided by a creditor will have a confidentiality clause. Read this carefully. This will require you to not discuss the terms of the settlement agreement. Generally, creditors don’t want people going on social media or the Internet to trumpet what a good deal they got because that would just encourage other people to play hardball with the creditor, which is understandable from the creditor’s point of view.
But these confidentiality clauses (which I call gag orders) are much broader than bans on posting to social media or the Internet. They forbid you from disclosing the settlement or its terms to almost anyone, with limited exceptions. Those exceptions are to discuss the settlement with your tax advisor/accountant, or your attorney or a financial advisor. A lot of times, however, an important exception is left out: the credit bureaus. You should make sure that your settlement agreement allows you to discuss the settlement with the credit agencies so that you can follow up with them to make sure that they’re reporting your credit history accurately.
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