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Paying Less in 'Full and Final Settlement'

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.


 
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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 several 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!

Student Overdraft

QUESTION

I have a current account with Barclays which I left dormant with -£146 (using a -£150 overdraft limit after finishing as a student). In January 1999 a statement was returned to Barclays marked gone away, yet I continued to live at my address. I received no information about my current account till I moved house and reported my change of address. My current account had been marked 'gone away' by Barclays.

Barclays have now issued a termination of overdraft notice for £320. During this time interest had been charged on the account taking me over the agreed limit and incurring automatic monthly charges of £20. I have received statements for a loan I have with Barclays, as well as information outlining the expiry of my student status, moving me from a graduate account to a standard account. I received no notice of any charges or interest during this time, and no statements for my current account. Do I still have to pay the charges and interest incurred if I was not sufficiently informed of my accounts status? Or, do I have to take responsibility for not monitoring my account?

Reply

I'll deal with your last point first. You do have to take responsibility at all times. Barclays only have to send you a statement as agreed. If the last statement was returned 'gone away' and they stopped sending further statements, they acted correctly.

As to the status of your account, if you were AWOL as far as Barclays were concerned it is difficult to understand why they looked at your account as a live account. After all, how many accounts have banks frozen over the years because they seem abandoned and accumulate interest to the detriment of the banks annual profits!

The question of interest is not so straight forward. In this type of situation, common sense is more important than who is right or wrong. A £146 overdraft escalating to £320, an increase of £174, is ridiculous and should have been frozen at some early stage. What is the true damage to Barclays? They have every right to interest say £30 and an administration charge of £24, a round £200. Offer them this figure in 'full and final' settlement. 'Most' lenders would accept this.