Amicable collection
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6
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Debt Acknowledgement Letter Template

During the amicable debt collection process, one of our key goals is to get the debtor to acknowledge your claim. As soon as the claim as acknowledged, your prescription period doubles in most countries, you get direct asses to debt enforcement and the debtor cant dispute the claim anymore. 

In this article you will get a template for a voluntary settlement and I will review how much the debtor should repay per. month, how the debtor should pay and with what payment methods. 

In most cases the debt acknowledgment letter is combined with a promise to start monthly reppayments of your claim. Therefore this document also equals a settlement where both parties agree that the debt exists, but can be repaid in installments. 

When do you offer the voluntary settlement? 

I clearly recommend that you enclose a voluntary settlement already during the amicable debt collection phase. I would also include a specific suggestion for an installemnt plan. 

Even if it means that you only get money later, you are more secure in payment, combined with the fact that you get a high interest rate in the meantime.

If you wish to offer the debtor a voluntary settlement in connection with reminder 1 and the debt collection notice, you can, for example, insert the following wording in the reminder letter.

Offer of voluntary settlement

If you do not have the opportunity to pay the entire debt at once, we would like to offer you the opportunity to repay the amount. Attached you will find a voluntary settlement with repayment of your debt over a period of 10 months. By returning the settlement signed before the deadline for this letter, you avoid additional reminders and collection costs. 

In the physical letter, you can attach a reply envelope with a signed version of the settlement. That way, you make it very easy for the debtor to return the settlement.

How much should your debtor repay per month?

It is really difficult to answer how much your debtor should repay per month.

As a rule of thumb, you can say that you should always accept agreements that ensure that the debt is repaid in a maximum of 10 months. This is because the bailiff's court without your consent can enter into agreements with the debtor, where the debt is repaid in less than 10 months.

You do not gain anything by “forcing” the debtor to accept an amount that is higher than what the debtor's finances can bear. If the amount is too high, you end up breaching the agreement. If the amount is too low, this will result in interest costs for the debtor and poorer liquidity for you.

There are two types of settlements you can enter into with the debtor. The voluntary settlement, where the debtor acknowledges the claim and undertakes to repay its debt, and a “recognizer settlement”, where the debtor recognizes the claim but does not at the same time start repaying.The acknowledgment settlement has no direct value to you as a creditor, except that the limitation period has been extended by 10 years and that the settlement can serve as a foundation.

Instead of an acknowledgment settlement, I would recommend that you enter into a voluntary settlement with an installment plan that has been deferred for a number of months. Thereby you give the debtor a financial respite, but at the same time ensure that a repayment scheme is subsequently started.

Template for voluntary settlement with installments

<debtor first name / last name>, <debtor address>, <debtor company or personal ID>, acknowledges that the following amounts due are due to the following creditor:

<creditor name>, <creditor address>, <creditor company ID>

The overdue claim is calculated as follows:

  • Principal: xxx USD
  • Interest (interest rate 8.05% p.a.): xxx USD
  • Reminder fee 1: xxx USD
  • Reminder fee 2: xxx USD
  • Reminder fee 3: xxx USD
  • Collection fee xxx USD
  • Total amount due: xxx USD

The claim relates to a <claim description> with an interest due of 8.05%, which is calculated from <interest from date>. Additional interest is calculated on the amount due at any time with an interest rate corresponding to local regulation. 

An agreement has been entered into on monthly settlement of the amount due, with <monthly amount> per. on the 28th of the month, corresponding to the total <number of installments>.

First payment is the <date of first payment>.

The remaining outstanding debt at any time will be due for payment and execution, which does not have to commence at the debtor's residence, if a payment is not due at the due date, the debtor sells or mortgages real estate or business, the debtor dies, is arrested or otherwise bailiff business with debtor, debtor takes up residence abroad, debtor stops his payments, or seeks composition or moratorium. In this connection, the debtor agrees to pay additional costs incurred, including transportation. This voluntary settlement can serve as a basis for enforcement, cf.section 478 of the Administration of Justice Act.

Any special rights of the creditor under the contract or the like are reserved.

The debtor is at all times entitled to repay the total debt. This can be done by transferring the amount to the account below. The creditor is only obliged to acknowledge the payment if the debtor has stated his case number correctly at the time of payment.

Payment can be made to:

<Account number>

<reg. No.:>

<date>

As a creditor:

<Creditor's signature>

<Name of creditor's contact person>

<Creditor's company name>

<Creditor's company ID>

<Creditor's address>

As a debtor:

<debtor's signature>

<Name of debtor's contact person>

<debtor's company name>

<debtors company or personal ID>

<debtors' address>

Who chooses how much to pay?

You can either let the debtor come up with a proposal for a monthly amount, or you can give the debtor a number of options to choose from. If you leave it up to the debtor to come up with an amount, I would recommend that you insert the following wording in your settlement text:

The creditor's acceptance is reserved for installment plans of more than 10 months.

If the debtor has not heard from the creditor within 10 days after this agreement has been signed, the creditor has given his consent.

The wording means that you have the option of refusing if the installment plan is over 10 months, but that you accept the agreement, unless you contact the debtor within 10 days.

We usually give the debtor three possible installment plans to choose from. This makes it easier for the debtor to make a decision, and we can control which rent the installments should be in. At the same time, we show the debtor that it will be cheaper to pay off the debt quickly rather than wait a long time. The longer it takes the debtor to repay, the higher his total interest costs will ultimately be.

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