Receiving a demand letter, especially from an attorney, is not a pleasant experience. Demand letters are used as a tactic to encourage a party to take (or refrain from) a particular action. For example, the sender may be asking you to pay a bill or repay a loan.
A demand letter can act as a starting point for settling a dispute. A demand letter can also serve as an ultimatum before the sender takes more serious action is taken. If the parties can’t come to an agreement after a demand letter is sent, the next step may be litigation.
What should you do if you have received a demand letter? What is the proper response? Below are seven tips that can offer some guidance on how to proceed.
1. Breathe
No, really: take a few deep breaths. Receiving a demand letter can make you feel anxious, defensive, and angry. But the first thing you should do is to allow for some time to pass between these initial emotions and deciding how to move forward with the letter.
Oftentimes, our emotions can hinder our ability to process information. By taking a few deep breaths, a walk around the block, or a brief 15-minute break, you may be able to calm yourself down so that your brain is not jumping to worst-case scenarios. You will also prevent yourself from taking impulsive actions that may come back to haunt you later, like calling up the sender to give them a piece of your mind.
When you receive a demand letter, the first thing to do is to allow for some time to pass between the initial emotions and taking action.
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2. Read the Letter Carefully
Reading the demand letter seems like an obvious next step, but it is crucial to actually read the letter instead of skimming it. When reading, think critically about the purpose of the letter and its contents. Is it being addressed to the right person or place of business? Are the claims purported in the demand letter valid? What are the motivations of the other party (or their attorney) for writing this letter?
Critically reading the letter can provide you with the information and details necessary to start taking action. For example, if the demand letter concerns a breach of contract claim, then your first step would be clear: obtain the contract and determine if a breach of the contract in fact occurred. If the demand letter is asking for money, does the amount match an invoice or loan? You want to check all the facts on your end to see if what the demand letter is asking for is justified.
The demand being made in the letter (usually financial compensation) may act as a starting point for settlement negotiations. The letter will likely also include a deadline for your response which may be an important date to note on your calendar so you can provide a timely response to prevent the other party from escalating the matter further.
Read through any received demand letter carefully and critically. Check all the information before jumping into action.
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3. Consider Your Options
Before you take any actions in response to the letter, sit down and carefully consider your options when it comes to ending the dispute. The easiest path to a resolution is obviously to agree to do what the other party asks of you. However, if you don’t feel the demand is justified, you can contact the other party and attempt to settle or contest the issue. If you think the other side is just bluffing and there’s nothing they can really do to back their demands, you can also ignore the letter, although that carries certain risks.
If you feel that you are actually the party that is entitled to money or a specific action, you may even consider countering with your own demand letter stating your own demands and version of the facts.
The “right” course of action will depend on the facts specific to your situation, so it is important to weigh the pros and cons of each action and assess potential consequences. It can also be wise to consult a legal professional that will help you understand your options and the consequences of any action (or inaction).
Part of considering your options also includes considering whether the potential outcomes meet your overall objective. For example, you may have a specific number in mind that you’re willing to settle on. By determining what your objective is at the outset, you may eliminate some options that clearly will not help you reach that objective. Additionally, having a clear objective can help minimize the impact emotions have on decision-making. When goals are clear, it is easier to see which options pave a clear path towards that goal and which ones will only serve to further divide the parties.
After having made sense of the received demand letter, consider all your options and the implications thereof.
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4. Consider the Costs
Before responding (or not responding!) to the demand letter, carefully weigh the costs associated with each option. For example, if your neighbor requests that you pay $1000 to repair damaged property worth $800, that could be understandably frustrating. However, if your instinct is to fight tooth and nail and take the matter to court if need be, consider the costs of filing fees, attorney representation or advice, and the cost of your time in dealing with the issue. Would it really be worthwhile fighting over the $200 difference in court? For most reasonable people, no.
In addition to financial considerations, think about the toll that disputing the demand letter will have on your attention and mental wellbeing. For example, if the demand letter is for a significant but not unreasonable amount, think about not only the financial cost but also the toll the matter will have on your time and emotions.
When receiving a demand letter, consider the possible financial and emotional costs before choosing a plan of action.
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5. Collect Evidence
No matter how you decide to respond to the demand letter, it is important to collect evidence relevant to the matter. Let’s say the demand letter says you owe a certain amount for a loan or that a payment is past due. You will want to collect any evidence of the terms of the loan or promise of payment, including any written contract, emails, and texts, and make notes on your memories of any verbal conversations.
Or, suppose the demand letter concerns a breach of contract claim. You will obviously want to collect the version of the contract that you believe both parties agreed to but also other information like voicemail messages, e-mails, or text messages related to the contract or the alleged breach. Sometimes there’s controversy over whether even a contract was entered into or what exactly constituted the contract, so you’ll want to gather as much information as possible.
Consider building your own timeline of understanding, clearly outlining important dates or events that took place related to the issue at hand. Building a timeline can also help you determine what additional evidence you may need to support your side of the story.
For every received demand letter, collect all the evidence and create a timeline that supports your side of the story.
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6. Consult Someone Else
Depending on your situation, it may help to have an uninvolved third party look at your situation. Although it can be costly, if the circumstances have high stakes having an attorney review the demand letter can be extremely helpful. A legal professional can advise you on the best ways to proceed and give some potential ideas for settling or disputing the demand. A good lawyer can provide value in the right situation even though you have to pay a fee.
A lawyer will be able to help you analyze the claim, develop a strategy, identify what documentation is necessary or what information is missing, and help you determine what subsequent action would best help you meet your objectives.
However, it is not always practical to engage an attorney for cost or other reasons. As an alternative, you may want to obtain feedback from a trusted colleague or a business partner. It’s often helpful to have a fresh set of eyes and someone with a neutral opinion looking into an issue where your own emotions and history may cloud your judgment or perception.
Consulting someone else may help provide you with a new perspective that changes what factors you consider and how heavily you weigh them in your analysis of the situation. Your trusted friend or business partner may also raise details that you overlooked the first or second time you read the letter, which may save you from making a costly mistake (or help you find a way to settle the issue quickly!).
Consulting a third party may help understand the demand letter and add new perspectives on the demand and options.
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7. Make a Choice and Follow Through
Lastly, it is important to make a clear and informed decision when moving forward with the demand letter.
If you choose to ignore the demand letter, this may result in the other party paying filing costs and attorney fees to pursue the matter in court. These costs may make it more difficult (or expensive) to settle the matter after the deadline to respond has passed.
If you choose to respond to the demand letter with a letter of your own, be certain that the letter is factual, professional, and respectful. Ensure that the letter is delivered by the deadline and obtain some tangible evidence that your response letter was delivered.
Make a firm decision and stay committed when responding to a demand letter.
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Final Thoughts
To summarize, when receiving a demand letter, your should follow these steps:
- Take a deep breath before taking any action.
- Read through the demand letter critically, fact-checking as much information as possible.
- Consider all your options and the impact those actions may have.
- Consider if the financial and emotional cost may outweigh any actions.
- Collect all the evidence and create a timeline of the events to support your narrative.
- Consult a third party to help make sense of the demand letter and brainstorm possible actions.
- Make the best possible decision and stay committed to your response.
Whether you’re the sender or a recipient, dealing with a demand letter is never pleasant. A demand letter signals that a dispute has reached a critical point where one side feels forced to make a formal demand for settlement. Whether you’re looking to send a demand letter to get something you’re owed, or in response to a demand letter, we can help.
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