Debt Collection Agencies Are Buying Up Remaining Balances Of Full And Final Settlements
I don’t know if this is true or not, but I have read on the Consumer Action Forums that some unscrupulous lenders are agreeing full and final settlements with their borrowers, confirming that they will not pursue the remaining balance of the debt to the borrower, but then selling this remainder onto debt collection agencies.
Apparently this is referred to as “Zombie Debt” - I guess because it reappears years later after you thought the account had been closed.
I have looked into the legal precedents of this and found that there is case law that has set the precedent for cases such as this, in so much that if you have agreed to pay a reduced figure in full and final settlement of a debt, then the spirit of the agreement is that you as the creditor will not be obligated to pay the remainder of the balance, once the creditor has received the agreed amount under the full and final settlement.
My instinct tells me that there are just some rather careless or naive people out there that have not got a written agreement with a creditor prior to settling a debt, and as such have proceeded to repay an amount, typically less than the balance, in good faith that the payment was a full and final settlement.
Clearly if there is no written agreement, I can see that it would be very easy for a creditor to assume that the payment is simply part-payment of the debt and therefore the balance remaining would still be owed.
I would suggest that if anyone is considering going down the route of offering full and final settlements to creditors, ensure that you have a written agreement with them that your offer less than the balance outstanding is as full and final settlement, with the remaining balance to be written off. Alternatively if you are not confident of negotiating with your creditors, speak to a professional debt advisor and get them to negotiate the settlement.