Can a Creditor Refuse to Accept any Payment on a Debt?

The majority of Americans are in debt, with some estimates as high as 80 percent. Most household debt consists of mortgages and student loans, followed by auto loans, credit cards and medical bills. The majority of Americans also live paycheck to paycheck. So it only takes one substantial unexpected expense to push most of us to the edge. The air conditioner blows up or a medical issue arises and suddenly you're in a position where you have to make alternative arrangements for paying your monthly bills.

Creditors can legally refuse partial payments and demand payment in full, including interest and extra charges like late fees. There are no laws that require them to accept your payments or partial payments. Some creditors are more willing to work with you than others. Virtually all utility companies have hardship programs that allow you to make partial payments for a limited amount of time. Mortgage and auto loan lenders are less likely to accept reduced payments and the consequences of not staying current on those debts are serious.

For starters, get organized. Gather all of your bills and sort them according to due date. Make sure you know exactly how much is due when. Prioritize bills according to due date and the impact they will have if not paid. If you don’t make your car payment, your car could be repossessed which may mean you can’t get to work. So that car payment is a high priority. If you don’t make a credit card payment your credit rating will suffer, but you’ll still be able to get to work and buy groceries. So that bill might be a lower priority. It all depends on your specific situation.

If at all possible, contact your creditors before your payments are late. Some creditors are more willing to work with you if you call them before your account is past due. Letting them know in advance shows them that you’re taking responsibility for the debt and that you’re sincere. Going forward, keep copies of any and all communication between you and your creditors. Keep copies of emails, faxes, mail and the envelopes these documents come in.

Negotiating with bill collectors by phone is tough. It can be unpleasant and intimidating. While they usually record all conversations, you won’t have any documentation of what was discussed. So any communication regarding partial payment offers should be in writing. That way you’ll have a record of your effort to repay the debt. Having tangible proof of making an effort could prove invaluable if the creditor takes legal action against you. Judges may look more favorably upon you if you can show that your intentions are good and that you're trying.

Templates are available online for writing partial payment offer letters to your creditor, as well as responses if they turn your offer down. Search for “payment agreement letter” or “pro-rata offer.” In your letter, explain the reason for requesting a special payment arrangement and emphasize that you’re making a goodwill effort. You might also want to list other creditors that have accepted partial payments from you, if there are any. Whenever possible, include documentation supporting what you're saying.

Even if a creditor accepts your partial payment offer, they may not send you anything in writing confirming it. So it’s up to you to document any arrangement that’s been agreed to. Send a follow-up letter thanking them for accepting your offer and spelling out your understanding of the terms you've agreed to.

If your first partial payment request is turned down, there’s no harm in trying again. You could send another letter proposing a higher partial payment or just ask the creditor what they will accept. You may have to go back and forth for a while but under no circumstances should you make a commitment to pay any more than you can afford to pay. Defaulting on an impossible arrangement will only count against you.

Not all creditors can or will be willing to work with you. A lot of times they can’t because it’s against their company’s policy. If you run into this, ask if they have other types of flexibility. Some will waive late charges or let you make interest-only payments for a few months. Others might freeze your account so that you can't use it but allow you to make payments at a low or no interest rate with the understanding that the account will be closed once it’s paid off.

In most cases, doing anything short of meeting your full payment obligations on time is going to affect your credit score. But do what’s necessary to get through and recover from the situation you’re in. You can tackle repairing your credit later.