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Being Sued for a Previously Settled Debt? Your Rights Under the FDCPA.

A consumer recently sought the help of The Langel Firm because she discovered she was being sued for a debt she had already settled and paid off several years prior. She received a summons and complaint indicating that the debt collector was seeking a judgment that reflected the original amount of the debt, minus what she had paid pursuant to the settlement agreement. It was as if the settlement agreement never happened, and all that money she paid towards it, thinking she was satisfying the debt in full, was merely chipping away at the larger overall debt.

She had kept meticulous records of the settlement discussions and paperwork, and she produced the letter of settlement signed by the debt collector, which indicated the settlement agreement amount. She also produced payment receipts for each of the payments reaching the total settlement amount, thus making it indisputable that she had settled with the creditor and paid off this debt.

The Fair Debt Collection Practices Act, a federal statute, prohibits creditors or debt collectors from engaging in false or misleading communications regarding the nature or amount of a debt. New York General Business Law §349, a local New York law, prohibits similar communications. In this case, the debt collector was violating both statutes by misrepresenting that the consumer still owed the remaining balance on the debt, even though it had long since been settled and paid off.

If a creditor or debt collector is pursuing you for a debt that you have already settled and paid in full according to the terms of the agreement, you may be able to bring a cause of action against the creditor or debt collector under the FDCPA or the General Business Law § 349.

What should you do when you believe you've reached an agreement with a creditor to settle a past-due debt?

Follow these steps to maintain proof of settlement and ensure that settlement agreement is honored:

  • Record the details of your conversation with the representative you spoke with, including his or her name, direct phone number, title, ID number, or any other identifying information.
  • Ask the representative to follow up with a letter that reflects the terms of the settlement agreement. The letter should include the details of the agreement, including the total amount agreed to, and if you have agreed to pay over time, the amount of each payment and the dates on which you will submit payments.
  • If you have agreed to pay it off over time, carefully review the payment receipts that you receive and check the account details. If the balance reflects the original debt balance and not the agreed upon settlement amount, you should contact the representative you spoke with, or somebody else at the debt collection agency, and have it updated to reflect the new agreed-upon balance.
  • Maintain records regarding the settlement so that if the debt collector or creditor pursues you, you can react quickly by producing proof of the settlement agreement and that you have complied with it and paid it off.