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.