Ignoring a demand letter can lead to many serious problems, like further legal trouble, additional costs, and harm to your reputation. It’s always better to address a demand letter rather than pretend it doesn’t exist. Let’s explore the consequences of ignoring a demand letter and what to do instead.
- You can face legal trouble.
- You might pay more.
- You can miss out on a deal.
- You can get a bad reputation.
- You can hurt your credit score.
1. You can face legal trouble.
If you don’t respond to the demand letter, the sender might decide to sue you. This means they take the issue to court, and a judge gets involved. Going to court can be very expensive and time-consuming.
If you ignore both the demand letter and any court notices, the court might even decide against you without you being there. This is called a “default judgment.” For example, if someone sends a demand letter asking you for payment and then sues you, not responding to the court’s notices could lead to a judgment ordering you to pay up, possibly with interest.
2. You might pay more.
Ignoring a demand letter can significantly increase your financial burden in the following ways:
Legal Fees
Hiring a lawyer is pricey if you need to defend yourself in court. Lawyers typically charge by the hour, and legal battles can drag on for months or even years.
Court Costs
Filing fees, the cost of serving legal documents, and other court-related expenses can add up. These are generally unavoidable once a lawsuit begins. If you are being sued over property damage, for instance, just the initial filing of the lawsuit could cost several hundred dollars, which either party might end up paying depending on the judgment.
Paying the Opponent’s Legal Fees
In some cases, if you lose the lawsuit, the court might order you to pay the legal fees of the opposing party. This is common in civil cases involving contracts, property disputes, or business dealings. For example, if you are sued for not repaying a business loan and lose, you might have to pay your creditor’s attorney fees in addition to your own.
Settlement Costs
Sometimes, ignoring a demand letter closes off the possibility of settling the dispute for less than what might eventually be ordered by a court. For instance, if you are initially asked for a lower compensation for a car accident and ignore it, the final court-ordered payment might be much higher when factors like legal fees and punitive damages are included.
Damage Awards
If the case goes to court and you lose, you might have to pay not only what was originally demanded but also additional damages. For example, if you ignore a demand letter accusing you of copyright infringement, you might have to pay statutory damages, which can be substantially higher than actual damages.
Interest and Penalties
Many jurisdictions allow for the accrual of interest on unpaid judgments. If a court orders you to pay a sum and you delay paying it, interest can accumulate, increasing the total amount you owe.
The potential costs of ignoring a demand letter are considerable and can far exceed the initial amount or issue in dispute. Engaging with the process early, ideally with legal advice, can help manage or mitigate these costs.
3. You can miss out on a deal.
When you ignore a demand letter, you miss a crucial opportunity to negotiate, which could lead to a more favorable outcome.
Potential for Settlement
Often, the party sending a demand letter is open to settling the matter out of court, which might involve accepting less than what they initially demanded. For example, if a vendor issues a demand letter for $10,000 due to unpaid work, they might be willing to settle for $7,000 just to avoid the hassle and expense of going to court. By not responding, you forfeit the chance to negotiate this lower settlement.
Flexible Payment Terms
In some cases, the sender of the demand letter might be open to flexible payment terms. For instance, if you’re facing a demand for a large sum of money you can’t pay all at once, responding to the letter could open negotiations for a payment plan that suits your financial situation. Ignoring the letter closes this possibility and might lead to more aggressive collection tactics.
Avoiding Additional Demands
Negotiating can also prevent the sender from escalating their demands. In the context of business, for example, a supplier might initially seek a partial repayment or a return of goods as a compromise. Ignoring their demand could lead them to demand full payment plus additional fees or even take legal action, which could be more costly in the long run.
Preserving Relationships
Responding to a demand letter and entering into negotiations can help preserve professional relationships. For example, if a longtime business partner sends a demand letter over a misunderstanding or a contractual disagreement, engaging in a discussion could clear up the issue and maintain the partnership. Ignoring the letter might sever the relationship permanently.
4. You can get a bad reputation.
Ignoring a demand letter can harm your personal or business reputation in several ways.
Soured Business Relationships
Ignoring demand letters can signal to other businesses and partners that you do not honor agreements or deal with conflicts responsibly. For example, if a software development company ignores demand letters from a client regarding a breach of contract, not only might they lose that client, but the client could also spread negative feedback within the industry, making it hard for the developer to find new projects.
Online Reviews and Social Media
In today’s digital age, disgruntled parties might turn to social media or review platforms to air their grievances if they feel ignored. Imagine a contractor ignoring a demand letter from a homeowner who hasn’t fully paid for a home renovation. The homeowner might post about the experience on platforms like Yelp or Facebook, influencing potential customers’ perceptions.
Ignoring a demand letter can make people think your business doesn’t play fair or handle issues well, which can scare away customers or partners.
5. You can hurt your credit score.
Ignoring a demand letter about a financial obligation can have long-term effects on your credit score.
Reporting to Credit Bureaus
If the demand letter concerns an unpaid debt, the creditor might report your non-payment to credit bureaus once they consider the debt delinquent. For instance, if you fail to pay back a personal loan and ignore the demand letter, the lender might report this to agencies like Experian, Equifax, and TransUnion. This negative mark on your credit report can stay there for up to seven years.
Lower Credit Score
The immediate consequence of a debt being reported as delinquent is a drop in your credit score. Credit scores are calculated using several factors, including your payment history, which is the most significant factor. A single delinquency can reduce your credit score by several points, making obtaining favorable terms on future loans or credit offers harder.
Increased Insurance Premiums
Many people don’t realize that their credit score can impact their insurance premiums. Insurers often use what’s called a credit-based insurance score to determine rates. A lower credit score due to ignored debts can lead to higher premiums on your auto or homeowners insurance.
Collection Actions
If the debt remains unpaid and the demand letter is ignored, the creditor might escalate the situation by turning the debt over to a collection agency. This can result in additional negative entries on your credit report and further decrease your score. Collection agencies are also known for their persistent and sometimes aggressive collection tactics.
Don’t Ignore that Demand Letter!
It’s usually not a good idea to ignore a demand letter. Whether the claim is right or not, dealing with it directly can help avoid bigger troubles like court cases and extra costs. This proactive approach can help keep things under control and save you a lot of headaches in the future.
Ignoring a demand letter can lead to these and other legal troubles, making resolving the issue more stressful and expensive later. It’s better to respond to the letter, even if you disagree with what it says.