Settling a Judgment for Less Than Owed

Settling a judgment means you pay less than the total amount owed.

Settling a judgment means you pay less than the total amount owed.

Forcing a creditor to take you to court limits your power of negotiation. If a judgment has been entered against you, the creditor has secured the court's permission to seek payment through garnishment, bank levies and liens, but don't throw in the towel yet. Those court-approved processes of collection consume the creditor's time and money. You might be able to negotiate a settlement through which you pay only part of what is owed. It will not hurt to ask for a settlement.

The Settlement Letter

Draft a letter to the creditor explaining your circumstances. Explain that you came upon a financial hardship and cannot pay the total amount but that you wish to negotiate a settlement. Never offer to pay an amount in full immediately if you do not have the funds. Negotiating a settlement means you need the funds in hand to pay the debt immediately upon approval from your creditor.

Your Offer and Counteroffers

In the letter, offer to pay 25 percent of the total debt. This is the typical starting out point for negotiations in debt settlement talks. Typically, the creditor comes back with a counteroffer for a higher amount. Most debt settlement talks end at between 45 percent and 65 percent of the total debt price.


All letters and documents forwarded to the creditor should be sent using certified mail and a return signed receipt requested. The signature proves your creditor has received the correspondence. Keep all documentation of your communications with the creditor. You also need documentation of the settlement agreement when you file a satisfaction of judgment with the courts to show the judgment as paid on your credit report.

Satisfaction of Judgment

Payment must accompany the settlement letter and a request that the creditor file a satisfaction of judgment form with the court. Most states require creditors to file this report within a set time period. You may also file the form yourself along with the settlement agreement and proof of payment. You need the judgment to show as paid on your credit report to qualify for other credit such as mortgages and vehicles loans.


About the Author

Leigh Thompson began writing in 2007 and specializes in creating content for websites. She has been published online in various capacities. Thompson has an associate degree in information technology from the University of Kansas and is working on a bachelor's degree in business and personal finance.

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