A reader asks:
“Five years ago I had to default on a credit card. Two years later a partial settlement was agreed and I had a letter confirming this, saying the bank won’t be chasing me anymore. A year ago I got a letter saying the other half of the theoretically satisfied debt has been sold to a debt collector. I ignored this but the debt collector has now been chasing me for a couple of months.
Is it legal? Can I sue the bank and/or the new debt collector for:
a) selling/buying a debt that has been satisfied, or
b) for chasing me to repay the remainder of the settled/satisfied debt?”
What happens to a debt after a partial settlement
In a partial settlement (F&F), the creditor accepts an amount in settlement from the debtor which is less than the total amount – these are often called Full and Final settlements (F&Fs). For more details read the Guide to Full & Final Settlements.
If you can only make low or no monthly payments, but you can offer a lump sum a F&F can be a good way to settle a debt – you pay less so you are happy and the creditor is happy to have got some money right away.
When a full and final settlement is agreed, you might think the rest of the debt is wiped out. But legally it still exists, the creditor has just agreed not to contact you any more about it. Debt advisors say always get a F&F offer agreed in writing – just talking to a debt collector over the phone is not good enough, you want that letter as proof of your agreement!
If you make a PPI claim related to the debt after a partial settlement, then the PPI complaint money may not be paid to you – instead it may be offset against the “remainder” of the debt.
Can a debt be sold after a partial settlement?
Yes. It still exists and it can be sold. So the answer to the reader’s first question is No, he can’t sue either the original creditor or the debt purchaser for selling / buying the debt.
What can you do in this situation?
Could the reader sue the company for chasing him about this debt? Probably not – it is very unlikely that the contacts from the debt collector will amount to harassment, which is a criminal offence, see Harassment By Creditors for more details.
Instead you should write the debt collector a letter, saying that the debt was settled with xxxxxxxxx on dd/mm/yyyy and attach a copy of the F&F letter confirming this. Ask them not to contact you about this again. This will usually be all that is necessary.
In the unlikely event that the debt collector continues to ask you to make payment or starts any court action it may be a good idea to complain to the Financial Ombudsman that either the original creditor who made the partial settlement with you or the new debt collector is not “treating you fairly”. I suggest discussing this and any other options with a debt adviser: go to your local Citizens Advice or phone National Debtline.
How common are these problems?
It is very rare to have any problems after a F&F. You shouldn’t let the thought of this put you off agreeing a partial settlement – just make sure you get it in writing and keep that letter! Also check that the creditor has correctly updated your credit record after the F&F – the balance owing on the account should be changed to be zero. If the amount of money is very large, you could consider getting a formal deed drawn up by a solicitor, but this isn’t usually necessary.
All you need to know about F&Fs
How PPI can get you out of debt!
Experian or Equifax – which is best?
Robbie says
I found this very interesting. Would this also apply to IVA where full settlement was not made, only the agreed sum, could the balance be sold on to debt collectors?
Sara (Debt Camel) says
Hi Robbie, no this wouldn’t apply to IVAs at all – IVAs have a completely different contractual framework.
sue says
Wonder if you could clarify something regarding my PPI claim please . We were in a dmp for 3 years until I retired and took a lump sum private pension. The amount wasnt adequate to meet all of our debts but Payplan negotiated partial settlements, therefore we settled with all of our creditors. which means we feel debt free now. However Yorkshire Bank contacted us recently informing us of several of previous accounts may have cause for PPI redress. We did fill in the questionaire. Will YB apply the right to offset any PPI monies owing, meaning we will recieve nothing at all from them? Btw we no longer bank with YB, except our mortgage which is always paid on time.
Sara (Debt Camel) says
They may do – sorry I can’t be more definite. Legally a set off after a partial settlement is possible, as the “remaining” bit of the debt still exists.
Simon says
Hi. I’m a bit at a loss as I was offered a partial settlement for a Barclays account through Westcot, which I settled on the promise that they would not chase me for the remainder, nor would they pass it on anyone else for them to chase. However, less than three months after I settled Barclays got another DCA (Moorcroft) to start chasing me. As I’ve got all the letters from Barclays/Westcot in relation to this I’m certain that I’m not legally obliged to pay anything further but I need some advice about how to handle the situation. The debt was defaulted on more than six years ago and when I checked my credit file the Barclays account appears under the closed tab and is marked as ‘settled’. Can you please advise? Thanks.
Sara (Debt Camel) says
I suggest you put in a written complaint to Barclays, attaching a copy of the F&F correspondence and ask them to confirm the debt has been settled. Send a copy of this letter to Moorcroft.
Norma says
Hi Sara,
After re-reading your posts I’m beginning to think I just made a very big mistake.
I made a f and f offer to Barclaycard on Friday and they offered at least 570 of 1800. Approximately. I rang them back today after getting the funds and was told that my balance would not go to zero but they wouldn’t chace me for the balance , and that they would mark my credit file with partial settlement. I said this was confusing as I was told something different on Friday and was told I had to pay immediately as otherwise this offer could be withdrawn when I call back tomorrow. On reflection I immediately paid due to desperation but now I think this was a serious error of judgement.
I have nothing in writing from them apart from phone times, date and names.
And I just read on some threads that they can still sell the remaining balance to debt collection agencies.
Is there anything I can do to reverse this payment until they can confirm the zero balance?
I’m I able to appeal against it being transferred to other lenders.
Can I just ask for the funds back seeing that they were from a family member and I do feel misled?
Please advice?
Sara (Debt Camel) says
It’s probably ok but It would be much better to get confirmation in writing.
I suggest you phone them up and ask for confirmation of their accepting your full and final settlement offer in writing. Including that the debt will not be sold to a debt collector. Say if they won’t provide this you want your relative’s money back. If they won’t send your written confirmation, or they do and it isn’t clear, put in a written complaint.
Sarah says
Hi I had a mortgage shortfall with Mortgage Express (default date July 2011) and I haven’t been contacted about it ever. It is on my credit file showing as ‘Satisfied 2015′ partial settlement, explanation – payment received by full and final settlement although the payment would not fully clear the balance.’
I assumed that they had written the balance off… but I have just had a text from Bradford & Bingly / Mortgage Express asking for me to contact them? Where do I stand on this? I am confused that they are contacting me 2 years after my credit report says it’s settled…
Many thanks in advance!
Sara (Debt Camel) says
Did you agree a settlement with them?
Alice says
Hi,
Really helpful article. I wondered if you had any tips on how much to offer. I owe 9k to a high street name. I’ve already paid them £5200 and currently pay £110 a month through a debt plan of which the majority is this debt.
The original loan is in joint names but I am liable for the whole debt as I agreed it as part of my divorce settlement to keep equity in my house.
My Aunty is willing to help me clear it early if I can get a good settlement figure, she has a limit of around 5k. I have three years left to clear the balance.
Where do I start with an offer to them?
Sara (Debt Camel) says
Has the debt been sold to a debt collector?
Alice says
No, it’s still with the original lender.