What Is a Demand Letter?

The term demand letter refers to a formal document sent by one party to another in order to resolve a dispute. The sending party may issue one in order requesting payment or another action in order to right a wrong or settle some type of grievance. The recipient may be in financial default, may have breached a contract, or may not have followed through with an obligation. They are normally written by lawyers. Demand letters are commonly the first step aggrieved parties turn to before taking legal action against the recipient.

Key Takeaways

  • A demand letter is a document sent by one party to another in order to resolve a dispute.
  • The letter requests some form of restitution to the aggrieved party and is often preceded by amicable attempts to remind a recipient of the obligation.
  • Most demand letters are written by lawyers.
  • Demand letters outline the damages, the demand for restitution, a deadline, as well as any consequences if the conditions are not met.
  • Don't ignore a demand letter but take the time to review and respond to it if you receive one.

Understanding a Demand Letter

As the name implies, a demand letter requests that the recipient make restitution to the aggrieved party. It is often preceded by phone calls, emails, and other more amicable attempts to remind the recipient of their obligation. As noted above, demand letters are generally written by a lawyer on behalf of an individual or corporation, although the sender may sometimes write it themselves.

In most cases, a demand letter is sent as a courtesy or a reminder after other attempts have been exhausted and before any legal action is taken. It is usually forwarded to the recipient by certified mail, giving them a final chance to rectify the situation—financial or otherwise. Most demand letters contain directions on how to resolve the issue, including payment details and deadlines.

The recipient may follow through with the writer's request by fulfilling the conditions outlined in the letter. The recipient may, on the other hand, respond with their own letter denying the claims. The recipient may also choose to ignore the demand letter. In the last two cases, the sender may take legal action, bringing a lawsuit in court to remedy the situation.

The letter shows the sender is serious about coming to a resolution. Although they are not legally required, demand letters are frequently used in contract law, tort law, and commercial law cases. Most courts consider the recipient sending a demand letter as a measure of good faith to try to come to a resolution.

What's In a Demand Letter?

You can write demand letters yourself. But most people choose to pay a lawyer to draft up the document. There is no prescribed length for a demand letter, though a shorter letter is ideally better. It should only be long enough to clarify your intent. If it goes beyond that, it begins to hurt the letter's effectiveness. And writers should be sure that they don't stray from the facts.

The demand letter should include the following information:

  • the purpose of the letter
  • the parties involved
  • the date/time of the grievance
  • a description of any and all damages incurred by the writer
  • the demand for restitution

Most demand letters give the recipient a certain amount of time to resolve the dispute, along with any consequences imposed on the recipient if they don't meet the conditions laid out by the sender.

It's important to consider the tone of the letter. Remember to be straightforward and serious. Any semblance of a threat on the part of the writer may not sit well with the recipient. Keeping the demand letter as professional as possible demonstrates that the writer is seriously considering a lawsuit. If the recipient doesn't respond, the sender could initiate court action. A court clerk and judge may look favorably on the conciseness and professionalism of a demand letter.

If you do go to court, a poorly written demand letter—one that's unprofessional, threatening, strays from the facts, and isn't concise—can backfire against you in court.

Legal Considerations for Demand Letters

Some demand letters may fall under the purview of the Fair Debt Collection Practices Act (FDCPA) or may be subject to state laws in the United States. These laws outline rules which must be followed in debt collection. They allow a debtor to seek damages if these rules are not followed. Legal counsel is often involved in attempting to collect seriously overdue debts.

It's not uncommon for shady pseudo-collection agencies to send seemingly viable demand letters requesting immediate payment, even though no letter was appropriate. These types of schemes often graduate to outright scams, where unsuspecting consumer credit obligors send payment in error.

Demand Letters in Personal Injury

In personal injury claims, the settlement negotiation process begins with the victim submitting a demand letter to the insurance companies. The purpose of the demand letter is to present facts about the incident to persuade the insurance companies to provide adequate compensation.

A typical demand letter may be structured as follows:

  • Description of the accident
  • Discussion of accident liability
  • Description of personal injuries
  • Description of medical treatments
  • List of medical bills/lost income statements
  • Injury settlement demand

What to Do When You Receive a Demand Letter?

Receiving a demand letter can be intimidating, especially if it is unexpected. As a result, some people may choose to throw away or ignore the letter when they get one. While that isn't illegal, it's usually not a good idea to do so. That's because it's usually seen as a measure of good faith on the part of the sender to come to a resolution. If the matter ends up going to court, you'll probably have to answer for your actions or lack thereof.

Make sure you take the time to go through the letter carefully and understand the sender's side of the story. Go through the facts listed in the letter and ensure everything is correct. Once you've figured out the sender's stance, you may want to consider the possibility of hiring a lawyer to defend you.

You may decide what position you intend to take. Do you want to settle, offer a counteroffer, hold your position, or go to court? Regardless of which direction you take, make sure you respond to the sender in writing. Just like the sender, ensure you send your letter by certified mail so you get verification that it was received.

Not all demand letters lead to a lawsuit.

Demand Letter FAQs

Can You Ignore a Demand Letter?

Some people may choose to ignore a demand letter for various reasons. But it's not in your best interests to do so. If you do blow it off and the matter goes to court, you will have to justify to a judge why you didn't respond to the sender's good faith effort to come to an amicable resolution.

How Long After a Demand Letter Does Settlement Take?

There's generally no set length of time to reach a settlement after a demand letter is sent. The sender gives the recipient a deadline. This is the time by which they expect the recipient to respond. Both parties can come to the table to form an agreement and settle the issue after the original demand letter is sent.

What Happens After a Demand Letter?

Once a demand letter is issued, the sender waits for a response. The recipient has a chance to review the letter, its contents, and verify all the facts. Once done, the recipient can respond by counteroffering, settling, or refusing to comply with a list of reasons why. The recipient may choose to hire a lawyer to write their demand letter.