📅 Payment Plan Proposal Demand Letters

Structuring Realistic Debt Repayment Plans

⚖️ How Payment Plans Work

A payment plan allows a debtor to pay a debt over time in installments rather than in a lump sum. Both debtors and creditors can propose payment plans.

Why Payment Plans Are Used

Debtor lacks lump sum: Can afford monthly payments but not full balance
Creditor prefers full payment: Willing to wait if it means collecting 100% vs. settling for less
Avoid bankruptcy: Payment plan keeps debtor out of bankruptcy, preserving creditor's recovery
Stop collection activity: Creditor agrees to halt lawsuits/garnishment during payment period
Preserve relationship: Business relationships can continue while debt is repaid

Payment Plan vs. Settlement

Factor	Payment Plan	Lump Sum Settlement
Total amount paid	Usually full balance + interest	Reduced amount (30-70% of balance)
Time to resolve	Months or years	Immediate upon payment
Cash needed	Monthly amount; spread over time	Full settlement amount upfront
Credit impact	May improve as payments made; "pays as agreed" possible	"Settled for less"; negative mark
Risk of default	High: debtor may miss future payments	Low: one-time payment resolves debt

Key Terms in Payment Plans

Monthly payment amount: Fixed dollar amount per month
Duration: Number of months (e.g., 12, 24, 36 months)
Interest rate: Whether interest continues to accrue during plan
Start date: When first payment is due
Automatic payment: ACH debit vs. manual payments
Default provisions: What happens if debtor misses a payment
Collection freeze: Creditor agrees not to sue or report during compliance

💰 Proposing a Payment Plan as a Debtor

When to Propose a Payment Plan

You have stable income but no lump sum savings
Creditor has threatened lawsuit or garnishment
You want to pay in full but need time
Debt is valid and you don't dispute it
You're trying to avoid bankruptcy

Calculating What You Can Afford

Step 1: Create a budget

Monthly income (after taxes): $______
Essential expenses (rent, food, utilities, transportation): $______
Minimum payments on other debts: $______
Discretionary funds available for this debt: $______

Step 2: Determine realistic payment

Don't offer more than you can truly afford month after month
Leave buffer for emergencies
Consider whether this is your only debt or one of many

Don't Overcommit: Offering $500/month when you can only afford $200 will result in default, lawsuit, and worse terms. Be honest about what you can pay consistently.

What to Request from Creditor

Freeze or reduce interest: Request 0% or reduced rate during payment plan
Waive late fees: Ask creditor to remove accumulated late charges
Stop collection activity: No lawsuits, garnishments, or harassing calls while plan is current
Credit reporting: Request "pays as agreed" or at least no new negative marks while compliant
Written agreement: Get all terms in writing before making first payment

Structuring Your Proposal

Option A: Full balance over time

Balance: $10,000
Propose: $200/month for 50 months (100% repayment)
Request: 0% interest during plan

Option B: Partial settlement via payment plan

Balance: $10,000
Propose: $150/month for 36 months = $5,400 total (54% repayment)
Request: Creditor forgives remaining $4,600 upon completion

🏢 Creditor-Side: Offering Payment Plans

When to Offer a Payment Plan

Debtor has income but lacks lump sum
Debtor is responsive and cooperative
Debt is large enough that settlement would be too low
Preserving customer relationship has value
Litigation costs would exceed likely recovery

Protective Terms for Creditors

Promissory note or installment agreement: Formalizes the payment plan as enforceable contract
Personal guarantee: If debtor is a business, require owner's personal guarantee
Security interest: Take collateral to secure the payment plan
Automatic payment: Require ACH authorization to reduce missed payments
Acceleration clause: If debtor misses X payments, entire balance becomes due immediately
Attorney fee provision: Debtor pays your attorney fees if you have to sue for breach
Confession of judgment: Pre-signed judgment (allowed in some states)
No discharge without completion: Debt not forgiven until all payments made

Interest Rate Considerations

Interest Option	When to Use
0% interest	Short-term plan (6-12 months); incentive to keep debtor paying
Reduced interest	Long-term plan; lower than original rate but covers time value of money
Contract rate	Continue original interest rate from contract
Late payment penalty	Add penalty rate if payment is late (e.g., 5% late fee per missed payment)

Default Provisions

Your payment plan agreement should specify what happens if debtor defaults:

"If Debtor misses two consecutive monthly payments, Creditor may declare this agreement in default, accelerate the remaining balance, and pursue all legal remedies including filing suit for the unpaid balance plus interest, late fees, and attorney fees."

📄 Sample Payment Plan Letters

Sample 1: Debtor Proposes Payment Plan

[Your Name] [Your Address] [Date] [Creditor/Collector Name] [Address] Re: Payment Plan Proposal Account #[Number] To Whom It May Concern: I am writing to propose a payment plan to resolve the above-referenced account. CURRENT SITUATION: I acknowledge that I owe $[amount] on this account. I am unable to pay the full balance immediately due to [brief explanation: job loss, medical emergency, etc.]. However, I have stable income and am committed to repaying this debt. PAYMENT PLAN PROPOSAL: Monthly Payment: $[amount] Start Date: [Date - usually first of next month] Duration: [X] months Total Amount to be Paid: $[amount] This plan will pay the debt in full over [X] months. REQUESTED TERMS: 1. Interest: I request that interest be frozen at 0% during this payment plan 2. Late Fees: I request that all late fees and penalties be waived 3. Collection Activity: While I am current on this payment plan, no further collection activity (lawsuits, garnishment, collection calls) 4. Credit Reporting: Report this account as "pays as agreed" or "current" while payments are timely 5. Written Agreement: Provide written confirmation of these terms before I make the first payment PAYMENT METHOD: I will make payments via [ACH/check/online payment] on the [1st/15th] of each month. I am committed to honoring this payment plan. Please respond in writing by [date] if you accept this proposal. Sincerely, [Your Signature] [Your Name] [Phone] [Email]

Sample 2: Creditor Offers Payment Plan

[Creditor Letterhead] [Date] [Debtor Name] [Address] Re: Payment Plan Offer Account #[Number] Balance Due: $[Amount] Dear [Debtor Name]: We understand you are experiencing financial difficulty. To assist you in resolving this account, we are offering the following payment plan. PAYMENT PLAN TERMS: Account Balance: $[amount] Monthly Payment: $[amount] Number of Payments: [X] months First Payment Due: [Date] Interest Rate: [X]% per annum (or 0% if goodwill offer) Total amount to be paid: $[amount including any interest] PAYMENT METHOD: Payments will be automatically debited from your bank account via ACH on the [date] of each month. Please complete the enclosed ACH authorization form. AGREEMENT CONDITIONS: 1. First Payment: Your first payment of $[amount] is due by [date] to activate this agreement. 2. Timely Payments Required: All subsequent payments must be made on time. If you miss two consecutive payments, this agreement will terminate and the entire remaining balance will become immediately due. 3. Collection Activity Suspended: While you remain current on this payment plan, we will not initiate legal action. However, if you default, we reserve the right to file suit for the full balance plus interest, late fees, and attorney fees. 4. Credit Reporting: We will report your payment activity to credit bureaus. Timely payments will be reported as "pays as agreed." 5. No Waiver of Rights: This payment plan does not waive any of our rights or remedies under the original agreement or applicable law. ACCEPTANCE: To accept this offer, sign and return the enclosed agreement along with your first payment and ACH authorization by [date - 15 days]. If we do not receive your acceptance by that date, this offer is withdrawn and we will pursue other collection remedies. We hope this payment plan will help you resolve this obligation. Sincerely, [Signature] [Name] [Title] Enclosures: Payment Plan Agreement, ACH Authorization Form

⚠️ Legal Risks and Considerations

Statute of Limitations Risk (Debtors)

Making partial payments on a debt can restart the statute of limitations in many states.

SOL Restart Risk:

If debt is close to statute of limitations expiration, entering a payment plan may restart the clock
Once restarted, creditor has a fresh SOL period to sue you
In some states, ANY payment restarts SOL; in others, only a written promise to pay does
Check your state's law before proposing a payment plan on old debt

Default Consequences

If you miss payments under a payment plan:

Creditor may accelerate and demand full balance immediately
Any waived interest or fees may be reinstated
Creditor can sue for full balance plus penalties
Prior payments don't protect you—they may just reduce the balance creditor sues for

Credit Reporting

How payment plans appear on credit reports:

If you're current on the plan: May show as "pays as agreed" or "current"
If you default on the plan: Will show as delinquent
Original delinquency still shows: The initial missed payments that led to collections still appear
Completion of plan: Some creditors report "paid in full" upon completion

Tax Consequences (Partial Forgiveness Plans)

If your payment plan includes forgiveness of part of the debt upon completion:

Example: Owe $10,000, pay $6,000 over 36 months, creditor forgives remaining $4,000
The $4,000 forgiven is cancellation of debt (COD) income
You'll receive Form 1099-C and must report it (subject to insolvency exception)

Written Agreement is Essential

Never Start Payments Without Written Agreement:

Verbal promises from collectors are not binding
Without written terms, creditor can still sue despite your payments
Demand written confirmation of interest freeze, late fee waiver, and collection suspension
If creditor won't provide written agreement, reconsider the payment plan

💼 How I Help with Payment Plan Negotiations

I help both debtors propose realistic payment plans and creditors structure enforceable plans that maximize recovery.

For Debtors:

Analyze budget to determine affordable payment
Negotiate favorable terms (0% interest, fee waivers)
Draft payment plan proposal letters
Review creditor's proposed plan for unfair terms
Defend against lawsuits while negotiating plan

For Creditors:

Draft enforceable payment plan agreements
Include protective provisions (acceleration, attorney fees, security)
Structure plans to maximize collection while minimizing defaults
Enforce defaulted plans through litigation
Balance payment plans vs. litigation economics

Structure a Sustainable Payment Plan

Whether you're a debtor seeking relief or a creditor maximizing recovery, I can help negotiate fair and enforceable payment terms.

Email owner@terms.law

Schedule a Call

Book a call to discuss your payment plan matter.