How to Use a Restrictive Endorsement to Settle Debts

A restrictive endorsement is a statement of terms that is attached with a payment or printed directly on the back of a check stipulating the conditions under which the check may be deposited, cashed, transferred or paid for imbursement of a debt, item, or service. Restrictive endorsements in regard to debts typically mean the payee sets forth conditions to retire a debt specifically, but these restricted funds do not necessary indemnify the payee from future collection attempts by the creditor.

Instructions

1

Validate the debt. If the debt has run the statute of limitations, engaging actions on the part of the debtor can constitute restarting the statute of limitations on the debtor's credit report. It is up to the individual debtor to ensure the debt is valid and will be updated on their credit report to show the debt as satisfied; this can be done by ordering a copy of an individual credit reports from all three credit bureaus (See Resources 1).

2

Contact the creditor. If the debt is valid and has not run past the statute of limitations, the debtor should phone the creditor to negotiate a settlement. Debts that have aged for a year or more are usually negotiable. The debtor should begin negotiating the debt as a percentage of the total amount owed (for instance, 10 cents on the dollar). The negotiation should continue until both parties can agree on a settlement amount.

3

Send the payment that includes a restrictive endorsement. Submit the payment to the creditor, and attach with the payment a written agreement detailing that the acceptance of the payment by the creditor constitutes payment in full and future credit reporting should reflect the debt to be paid in full or satisfied. It is often not sufficient simply to place the terms only on the back of a check to satisfy the debt and indemnify the debtor from future collection actions and/or credit restoration.

The check tendered for a debt settlement should contain language such as "Depositing of these funds by the creditor or its agents represents an acceptance of the enclosed settlement agreement as total satisfaction of the debt described."