Creditor
Covenant Not to Sue
Covenant not to sue summary:
Covenant not to sue is a legal term that describes a promise by one party not to sue another.
A covenant not to sue clause can be added to a debt resolution agreement to prevent a creditor from filing a debt lawsuit for the remaining balance owed.
The covenant not to sue can prevent a lawsuit, but it doesn't erase someone's liability for a debt they owe. It's not the same thing as a complete release from the debt.
Covenant Not to Sue Definition and Meaning
Covenant not to sue is a legal term that represents an agreement between two or more parties. In simple terms, a party who has the legal right to seek damages or compensation in court promises not to exercise that right.
A covenant not to sue can be added to different types of contracts. For example, your employment agreement might include a clause that says you agree you won't sue your employer if you're terminated.
Debt resolution agreements can also contain a covenant not to sue. If you resolve debts for less than what's owed and you have a covenant not to sue in place, the creditor can't take you to court later to try to collect the rest of the balance due.
More on Covenant Not to Sue
When financial hardship makes credit card bills hard to manage, you might turn to debt resolution for relief.
Debt resolution helps you pay off debt for less than the full balance due. The rest of the amount due is canceled. You can negotiate with credit card companies yourself or ask a professional debt resolution company for help.
A covenant not to sue can protect you from creditor lawsuits as you work to resolve debt.
Covenant Not to Sue: A Comprehensive Breakdown
Covenant not to sue means that a person or company that has the right to take legal action against another promises not to do so. Instead, they agree to work out their disagreement outside of court.
A covenant not to sue can be added to a contract or a legally binding agreement to prevent a future lawsuit. It's common, for instance, to be asked to sign a covenant not to sue when you're laid off in exchange for severance pay. You may find them included in:
Employment contracts
Work agreements between a contractor and a homeowner
Non-disclosure agreements
Personal injury settlement agreements
Intellectual property agreements
A covenant not to sue can also come into play if you're working to resolve debt. When you resolve debt, your creditor agrees to accept less than what's owed. The rest of the balance is forgiven.
When your agreement includes a covenant not to sue, the creditor can't sue you for the rest of the debt as long as you've done everything you agreed to. That means you pay the negotiated amount according to the terms you worked out with the creditor.
What happens if you end up in a debt lawsuit? If a creditor sues and wins, it can ask the court to force you to pay. The court could allow the creditor to garnish your wages, take money from your bank account, or put a lien on your property.
Real Life Example of Covenant Not to Sue
Suppose you owe $30,000 on five different credit cards. A financial hardship has put you behind on payments, and you're worried about a debt lawsuit. You decide to reach out to a debt resolution company for help.
The debt expert who's assigned to you works out a plan you can afford and negotiates with each of your creditors. Meanwhile, according to your plan, you make a regular monthly deposit into a secure account. Once an agreement is reached, the debt resolution company uses funds from your dedicated account to pay your creditors.
This process is rinse and repeat until all your debts are negotiated. Each of your creditors agrees to a covenant not to sue, in exchange for partial payment.
At the end of the day, you both come out ahead. The creditor gets back some of the money you owed, and you get protection from a lawsuit.
Covenant Not to Sue FAQs
If you don't pay your credit card off and carry a balance month to month, you'll likely pay interest and finance charges. If you stop paying your card altogether, the credit card company could contact you to ask for payment. It could assign your account to a debt collection agency, and in a worst-case scenario, you might be sued for the debt.
Credit card companies can sue you for unpaid credit card balances. If they're able to win a judgment against you, they could garnish your wages (that’s when a court orders your employer to withhold part of your paycheck every payday until the debt is satisfied). Creditors could also place a lien against your property, which means that you can’t sell it without paying off the debt. Or they could levy your bank accounts, which means legally taking money out of your accounts.
Yes, credit card debt forgiveness is possible, either through debt negotiation or bankruptcy.
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