Consumer Law

'Paid in Full' Check Memo

There's a story on the Internet about a woman who was on the verge of bankruptcy. While she didn't have a steady job, she had a lot of debt, and she planned to rack up thousands of dollars more on credit cards and student loans. She wasn't worried about paying it back because she was working with a lawyer who told her if she sent $10 checks to her creditors, with a note on the checks saying "paid in full," her debts would be erased.

True or False: Writing "Paid in Full" on a Check Will Discharge a Debt

Most definitely, false.

While the story has a certain appeal, it has no basis in fact. It's a misleading story, that, with the help of the media, has attained the status of an urban legend. After all, if getting out of debt was as easy as writing "paid in full" on a check, no one would be in debt. More to the point, no one would ever loan money or extend credit.

It's true that creditors frequently settle debts for less than the full amount due. But for the settlement to be valid, both sides, the debtor and the creditor, have to agree to the terms. In other words, a debtor can't discharge a debt by unilaterally declaring a partial payment to be payment in full simply by writing the words "paid in full" on his check unless the creditor agrees.

There is a provision of the Uniform Commercial Code, section 3-311, which states that a debt can be discharged with a check designated as payment in full. But for this section to apply, there must be a dispute about the debt, the debtor must offer the check as payment in good faith, and the creditor must obtain payment. In this context, "good faith" means honesty and honoring fair commercial standards. The act of writing "paid in full" on a $10 check is hardly a sign of "good faith."

The simple truth is you can't get out of debt quick by tricking a creditor into accepting a small payment as full payment on a large debt.

True Alternatives for Getting Debt Relief

If you're overwhelmed by debt, you can negotiate directly with your creditors to lower your payments - after all, it's in their interest to obtain some payment from you, even if it's not the full amount. You can work with a consumer debt counselor, who will negotiate with your creditors for you. But keep in mind that creditors pay debt counselors a percentage of the money recovered from consumers, so there's a strong financial tie between them. Above all, you should be realistic. Depending on your financial situation, bankruptcy may be the best option for you, and a relationship with a debt counselor may only postpone the inevitable. If you're not sure what to do, a qualified bankruptcy attorney can evaluate your situation and help you determine the best way you can become debt free.

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