The Debt Release Letter — for Final Payment, is created by a creditor after a debt has been paid to apprise the debtor and any third party that outstanding debts were already settled.
A Debt Release Letter is a receipt usually sent after the final payment as proof to the credit reporting agency. It is a reference for them to remove the debtor's collection in their credit report.
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What is the difference between a creditor and a debtor?
Creditor and debtor are accounting terms referring to lending arrangements. A creditor pertains to the person or entity that lends money or extends credit to another party. A debtor, on the other hand, is the one who is in debt.
A creditor usually demands collateral or loan covenants from the debtor to ensure that the latter will pay the debt. Thus, the creditor will take hold of the lien until the debtor fulfills the financial obligations.
However, if lending transactions are in cash, terms creditor and debtor may not be applicable. You may only be called as such if the transactions are in the form of loans payable or trade accounts payable.
What is a credit reporting agency?
A lending agreement between two parties is safer with a credit reporting agency. A credit reporting agency or credit reporting bureau maintains the credit history of individuals or entities. They partner with lenders and manage credit information including calculating credit scores and providing credit reports.
Creditors work with the credit reporting agency to receive information about a borrower’s debt history. The customized information furnished by the credit reporting agency influences the credit decision.
Furthermore, creditors and debtors must partner with a credit reporting agency to track down their debt arrangement. A Debt Release Letter functions as a receipt that notifies the credit reporting agency about the fulfilled debt so they can clear the collections from their credit report.
What is the purpose of a Debt Release Letter?
A Debt Release Letter may be used as follows:
- Confirmation. As a debtor, a Debt Release Letter serves as a confirmation that your account has been paid in full. It is also a legitimate document used to clear your debt records in any credit reporting agency.
- Formality. Writing a letter is a formal way to end or start an agreement. Therefore, sending a Debt Release Letter remarks the fulfillment of the agreement between you and the creditor.
- Protection. Any form of agreement shall be backed up with written documents. This is to secure both parties in case of disputes. A Debt Release Letter protects you from any charges when your settled debt is still reported as open in your credit report. Wherein, this letter states that creditors must refrain from making any more claims regarding the debt. Otherwise, actions will be considered harassment reportable to the State Attorney General’s office or the Federal Trade Commission.
Where to report debt disputes?
If a dispute emerges between you and the creditor after fulfilling your debt, you must report to a State Attorneys General’s office. The attorneys general are the “People’s Lawyer” in the United State.
Some of the responsibilities of attorneys general involve managing disputed debt cases, investigating criminal operations, looking into scams targeting seniors, violations of the state’s clean air and water laws, and evaluating whether mergers break antitrust laws.
Every state in the U.S. has assigned top legal officers who advise and represent their legislature and state agencies. Visit the official website of the United States government to find the appointed attorney general in your state.
What is the law that protects a debtor?
A responsible debtor must not be abused that is why the Fair Debt Collections Practice Act (FDCPA) was created.
It is designed to protect you from any unethical and unlawful debt collecting practices. It is part of the Consumer Credit Protection Act.
The Consumer Credit Protection Act (CCPA) is a piece of federal legislation that protects debtors against corrupt creditors, banks, and credit card companies. It is a law passed in 1968 that requires lenders to explain the actual cost of borrowing money in terms the debtors understand.
The FDCPA remarks these fair rules that third-party debt collection agencies must follow. These rules may protect you from the debt collector’s unethical behaviors.
- Debt collectors must refrain from conducting excessive communication or harassment that intends to intimidate you. This includes no calling before 8 a.m or after 9 p.m.
- Debt collectors must avoid being deceptive about the amount of your debt nor fake a debt that does not exist. It is your right to request a verification of the actual debt.
- Debt collectors are not allowed to obtain your information and discuss debt without the debtor’s permission.
- Debt collectors must introduce themselves when calling.
- Debt collectors must furnish you with a validation of the debt when requested.
- Debt collectors must not threaten you or use aggressive and obscene language.
- Debt collectors must not ignore your requests to cease the communication.
- Debt collectors must not force you to accept their call on your workplace.
How to file a Debt Release Letter?
Send the Debt Release Letter to your creditor and the credit reporting agency upon fulfilling your final payment. This is to inform them that you no longer owe the creditor and for the credit agency to clear your credit report.
How do I write a debt release letter?
A debt release letter is a document that is used in the accounting industry to denote a memo written by a creditor explaining his or her decision to write off a specific sum of money owed by one of their debtors. It is usually written when either the debtor has struggled to pay back the loan for an extended period of time or when it has become evident that there is little chance that they will be able to do so.
The letter will commonly list the amount of time taken by the debtor to repay their loan, whether this is 6 months, 12 months, or even longer. It will also state that for this reason, the creditor has decided that it is no longer worth their while pursuing repayment and that they are willing to let them off of the entire sum as a final gesture of goodwill.
Your debt release letter should have these parts:
- Your name and company — The debtor needs to know who they are dealing with and whether you have the authority to release their debt. If you don't feel comfortable stating your company's full legal name, then use another descriptor such as "The Customer Care Team" or "Customer Relations".
- How long the debtor has been a customer — This part is important because it shows that you have been doing business with this debtor for some time. It may vary from one debtor to the next, but most people will not want to clear debts owed by someone with whom they don't do business regularly. If this person has been a customer of yours for 2 years, mention the duration.
- The amount of money owed to you by the debtor — Again, this part is important because it shows that they have a significant outstanding debt with you.
- Accounts or trade details you need from them in order for the debt to be released — Here, you need to give the debtor an explanation of what information you require from them. For example "please send me a copy of your latest trade invoice containing order number 21331. I will release your debt once I receive this information."
- State that you are requesting this information so that you can release their debts — This is the part where you assure the debtor that you're not requesting this information for any reason other than to clear their outstanding debt.
- Include your own contact details — You should always provide your personal contact details in case they have any questions. A common mistake here would be not including an email address so they can get in touch with you.
When is a debt release letter used?
A debt release letter can be written by any creditor, however, it is usually reserved for those that have lent high value amounts to their debtors and who now feel that they will either never receive the money owed or will only receive a very small percentage of what they are owed. For example, you might have lent money to a debtor in the past but over time they have only repaid around half of the money. You may feel that it is not worth your while continuing to chase them for what is left so decided instead to offer them a final gesture of goodwill and write off the remaining sum you are owed.
Moreover, when a debtor has repeatedly missed their repayment dates or fallen into arrears on successive repayments, the creditor may feel that they would not be able to recoup any further sums in the future and is willing instead to let them off of the remainder of what they owe.
This gesture will hopefully encourage the debtor to finally return all future monies owed, however it is worth noting that in some cases the creditor may continue to chase for payment nevertheless.
How long before a creditor writes a debt off?
A creditor, in general, can write off a debt when it considers it uncollectable. It is up to them to decide to write off a debt by taking it on account of loss. Every creditor has a different process for determining whether a debt is uncollectible and how long before they write off a debt.
A creditor normally determines whether or not a debt is uncollectible after taking one or more of the following actions:
- The passage of any applicable limitation period under provincial law for starting legal proceedings to recover the amount owing on the debt, if any.
- A written demand for payment has been sent to the debtor, but there is no response or a refusal to pay. In some circumstances, a creditor may send a further demand letter reminding the debtor that they have not responded to earlier demands and that legal proceedings may be taken if necessary. However, this letter must not contain any reference to legal proceedings or threaten them.
- A debtor has agreed in writing to settle the debt for less than the full balance owing but has failed to honor that agreement.
- The debtor has made a partial payment on the debt but it does not cover the full outstanding balance and:
- There is no reasonable prospect of the creditor collecting the difference, or
- There is no reasonable prospect of future payments.
- No one seems to know where the debtor lives or works (where an address for sending legal proceedings has been provided).
- The debtor no longer lives or carries on business at the address where they are known to have lived or worked, there is no forwarding address, and reasonable efforts to find them have failed.
- A creditor can no longer contact the debtor by phone.
In most cases, writing off debt can be made when there are no payments for at least six months. This is why it becomes difficult to get in touch with debtors after six months. This means creditors may consider writing off the balance of your loan if they cannot contact you for more than 6 months (in most cases).
What is the difference between a debt release letter and a debt settlement agreement?
A debt release letter and a debt settlement agreement are two important documents that your creditors will ask you to sign when you have resolved a debt with them.
A debt release letter is a simple document that states the creditor has agreed to remove your outstanding balance from your account and not require any further payments from you. With a settlement agreement, you are able to get the creditor to reduce the amount that you owe without removing it from your account entirely.
A debt release letter is usually used when you want to pay a creditor in full and get them completely off of your back. This is something that can be very helpful if you just need some breathing room for a while so that you can get yourself back on track financially. A debt release letter allows you to settle your debt without getting sued or ruining your credit score in the long run.
This is often a preferable option for people who are looking to reestablish their trustworthiness with creditors, but it is also beneficial for anyone struggling with that last hurdle of financial instability before they're in a position to start making their credit payments again.
A debt release letter is completely legal and binding, however, you must remember that it does not erase the fact that you owe money or erase any negative marks on your credit report left by delinquent debts. A creditor will be able to add this balance back onto your account if you fail to make your reestablished payments in a timely manner.
A debt settlement agreement is different in that you are agreeing to pay less than the full amount that you originally owed. A creditor may agree to this because they don't believe they will be able to receive full payment for the debts, either because you no longer have any income (and therefore can't afford to pay them), you're unemployed, or because your credit score is too low and they won't get the full amount even if they take you to court.
When a creditor agrees to settle debts with you, it can be beneficial in the long run by stopping wage garnishments and lawsuits; however, this can also make things more complicated in the future if you need to get more credit. It's very important that it is made clear in the debt settlement agreement that you are not liable for any amount greater than what has been agreed upon.
If your creditor accepts this offer, then you will be responsible for making monthly payments on the new reduced balance until it is paid off. Depending on the size of the balance, it may take quite a few months to pay off, which can be difficult if you have other bills that are due. You will also need to continue filing your tax returns with the IRS and state government in order to avoid further negative consequences of not doing so.
What is the difference between a debt forgiveness letter and a debt release letter?
A debt forgiveness letter compared to a debt release letter is a letter that is written by one of the parties involved in a debt agreement to notify their intentions for settlement or liquidation of the balance owed. It serves as a formal document that is issued by the creditor upon agreement of conditions.
Execute this letter to ensure all terms and conditions are fulfilled before any money changes hands or paperwork is prepared. The letter must be written with clarity so that there will be no misunderstanding whatsoever on its purpose, contents, or both.
A debt forgiveness letter is a letter of notification used by your creditor to inform you that the remaining balance owed on your account has been fully or partially forgiven.
On the other hand, a debt release letter is a formal notification from the creditor to the debtor that all pending legal actions shall be revoked, and therefore a release of any lien, levy, or other legal processes should be prepared.
What should a debt release letter include?
A debt release letter should include the following:
- The debtor's intent to be released from debt; the debtor is not coerced and states their own intention with no intimidating statements or coercion.
- A resolution date — this is also known as the cancellation date. The creditor must receive word by this date that they accept the debtor’s terms and will forego any and all further dues, collections efforts, or both.
- A statement that no further action will be taken against the debtor after the resolution date, including wage garnishments, bank account levies, lawsuits, or repossessions if they have been threatened to achieve payment from the debtor.
- A statement that it is understood by both parties that this letter serves as notice to the creditor, and once they receive it, any previous agreements or agreements made after receiving this release letter are null and void.
- A statement about the debtor releasing all rights to take action against the creditor; no more judgments, wage garnishments, bank account levies, lawsuits, or repossession efforts can be achieved after this letter is received.
- A statement that the creditor will also release all rights to take action against the debtor after receiving notice of this resolution, including reporting negative information to credit bureaus or continuing lawsuits or other collection efforts.
- A statement that if there are co-signers on the debt agreement, they are also released from debt obligation by the debtor.
- A statement of release from each party after an agreed-upon resolution date.
A debt release letter should not include anything that could be construed as a threat or aggressive communication, such as:
- Statements that the creditor will take further action if they do not receive full payment by a certain date.
- Threats of taking legal action against the debtor, or reporting to credit bureaus, etc.
- The amount that must be paid for debt resolution - this can encourage anxiety about an unknown future expense and encourage the debtor to pay simply to relieve that anxiety.
- Statements about what will happen if the creditor does not receive any payment at all by the resolution date, as this may intimidate them into sending payment before they are comfortable with doing so, or cause them to seek legal advice to send a lawsuit instead of agreeing to debt release terms.
- Statements of coercion about what will happen if the creditor does not send this letter. This is implied by the fact that they are free to choose whether or not to agree with these terms and conditions.
- Threats that include words like ‘pay now’, ‘required’, ‘demand’, ‘refuse’, or ‘insist’, which can be seen as aggressive.
- Statements that the creditor will “take further action” if they do not receive payment by a certain date, including legal action of some kind (such as suing or repossession), or reporting to credit bureaus.
- Any language that might be seen as threatening or aggressive, or that appears to intimidate the creditor into sending payment before they are comfortable with doing so.
What is a letter of debt release?
A letter of debt release is written by a creditor to free oneself from the liability of paying back the loan amount. It serves as a written request for the absolute discharge of the debtor from any legal obligation. Moreover, a letter of debt release could also be written by a debtor himself to clear other debts that he might have taken from other creditors.
In cases where one has been under intense pressure from creditors to pay off the loan, it is advisable to write a letter of debt release as soon as possible. In such cases, both the disadvantages and advantages should be considered.
The debtor must ensure that the letter contains all the complete details of the loan, including interest and late payment fees if any. Moreover, one should also mention in detail how much is yet to be paid as per their records. In case the creditor has been regularly sending bills or taking calls from you even after your last settlement, it is highly advisable to mention it in the letter as well.
However, keep in mind that this is not a legal document and hence, there are no guarantees of receiving a reply from your creditor. In case you have been threatened by your creditor with dire consequences if the loan amount isn't paid within the next few days, rather than just beating around the bush, it is advisable to say the same in your letter as well. It would be better if you could also mention that you are willing to pay back the loan amount but since he hasn't been sending the statements regularly, you didn't know how much is still owed.