Can a Creditor Refuse to Accept a Debtor's Payments?

Can a Creditor Refuse to Accept a Debtor's Payments?

Last updated: October 2011

The following questions were submitted to John Roska, an attorney/writer whose weekly newspaper column, "Q&A: The Law," runs in the St. Louis Post-Dispatch (Illinois Edition) and the Champaign News Gazette. This article was published on July 14, 2011.

Question:

Can a creditor refuse to accept payments on a debt? If I sent them a payment, and they sent it back, is the debt cancelled? Can they still sue me?

Answer:

Creditors can accept or reject payments, and still sue. It’s a myth that rejecting your payment cancels your debt.

Creditors want money, so it’s a mystery when they reject it. Some claim that small payments cost too much to process, or take too long to repay the debt. Some may want to cultivate a tough reputation. Others, though, take anything they can get.

So, for good, bad, or no reason, creditors can reject payments. You can’t make them take your money.

Rejecting your payments does not cancel the debt. It’s not some kind of jubilee. A creditor who refuses your money can still sue you.

Once they sue and get a judgment against you in court, a creditor could still refuse to accept payments. But, having used up the threat to sue, they don’t have a lot of threats left that can squeeze more out of you. In most cases, a wage garnishment will be the most a judgment creditor can get, and they don’t need your permission to try that.

But threatening to garnish wages, post-judgment, may extract voluntary payments from employed debtors who want to avoid a garnishment hassle. Voluntary payments save the creditor from the extra hassle of a garnishment, too.

Because wages can only be garnished when a debtor’s employed, and taking home more than $371.25 per week, threats of garnishment can be hollow. A debtor earning less than that threshold amount can refuse to pay, and neither a judge nor a garnishment can make them pay.

Above that threshold, a garnishment will get the weekly net pay in excess of $371.25, or 15% of gross pay—whichever is less.

In Small Claims cases (for less than $10,000), the court rules say that “installment payments . . . shall not extend over a period in excess of three years duration.” But that runs up against the fact that some debtors simply can’t pay off a judgment that fast, or at all. In practice, then, that rule doesn’t get much use.

Creditors often prefer lump sum payoffs over installment payments that drag on forever. In exchange for one “big” payment, they’ll cancel the debt—even if that payment is a faction of what’s owed. When possible (e.g., tax refund time), lump sum payoffs are worth considering.

A lump sum for about half of what’s owed will almost always be taken seriously. If the debt’s been sold off to someone who paid pennies on the dollar for it, a lump sum for pennies on the dollar may be accepted. Same when a creditor realizes they can’t otherwise squeeze much blood out of you.

When a creditor agrees to take a lump sum pay-off, get it in writing. Before paying, insist they confirm that the payment satisfies the debt. Afterward, insist they confirm the debt has been satisfied.
 

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