Can You Get a Debt Collector to Settle for Less Than You Owe?

A reader, Ron, wanted to know if he can force a debt collector to accept less than the full amount due, and clean up his credit at the same time. How? By putting a mini-contract on the back of the check — something on the order of “Endorsing this check means you agree to accept it as payment in full for the debt owed and to remove the collection from my credit reports.” A neat trick if it works, right?

Here’s what Ron told us:

I was told by a lender that if you pay the debt with a check, for whatever price (example, $500.00 debt, and you send them say $75.00), if you put on the check this: “Endorsement of this check constitutes account is paid in full and account holder agrees to remove account #99999 from all three bureaus.” They told me that this would serve as a legal contract.

And so we asked debt expert Michael Bovee, founder of the Consumer Recovery Network, about this tactic. He’d heard about it before, and said it’s a bit like Sasquatch or the Loch Ness Monster: “Someone, somewhere has seen it, but the story and images are usually a bit fuzzy.”

Bovee had a few details to share, though. The notification on the check is sometimes called a novation — and though novation is real (it’s an element of contract law), the back-of-the-check route to accomplishing it isn’t going to work. “I occasionally run into the concept of using novation to pay off debts for less than what is owed,” he said. “Mostly people can expect the check they send with the limited endorsement to get deposited, and the creditor’s collections process to proceed unabated. Sometimes you could see the check returned with a brief letter explaining the company’s policy for not accepting limited endorsement payments.”

You’re more likely to be successful by settling with creditors and/or collection agencies, he said, “but settling for 15% of the balance owed that is being suggested here is not typical.”

When you are settling a debt, asking the creditor or collector to remove it from your credit reports in exchange for debt payment is a smart move. Most won’t agree, but you can always try.

You’ll want to protect your credit standing as best you can — because lower scores can affect more than your ability to borrow — you could pay more for car insurance, be denied an apartment or have to explain to a prospective employer what happened. It’s a good idea to know what’s in your credit records. (You get two credit scores and an analysis of the factors that affect them for free at Credit.com.)

Even if the collection won’t be removed from your credit report, your credit will probably be better off if you resolve your debt. Not paying potentially leaves you vulnerable to being sued — and a judgment on your credit report is worse than a collection account. But you’ll do better to be forthright in your negotiations: Trying to go the sneaky route isn’t likely to work.