DEFINITION of Demand Letter
A demand letter is a formal business letter sent to a debtor requesting payment. A demand letter is often written by a lawyer in order to ensure professionalism and compliance with certain laws. Generally, a demand letter is not sent until payment is far overdue. A demand letter is often preceded by phone calls and other more amicable attempts to remind a debtor of the obligation.
Many people regard the demand letter as the layperson's version of a legal complaint.
BREAKING DOWN Demand Letter
In the U.S., some demand letters may fall under the purview of the Fair Debt Collection Practices Act (FDCPA) or may be subject to state laws. These laws outline rules which must be followed in debt collection and allows a debtor to seek damages if these rules are not followed. Thus, legal counsel is often involved in attempting to collect seriously overdue debts.
Although demand letters are not legally required, they are frequently used, particularly in contract law, tort law and commercial law cases. As such, it's not uncommon for shady pseudo-collections agencies to send seemingly viable demand letters requesting immediate payment — even though technically, no letter was appropriate. These types of schemes often graduate to outright scams, where unsuspecting consumer credit obligors send payment in error.
In practice, there is no minimum or maximum length for a demand letter. Ideally, shorter is better. It should only be long enough to clarify your intent, anything more begins to hurt the letter's effectiveness. A letter that's straightforward will demonstrate seriousness to a legal dispute — the court clerk and judges who are extremely busy may look favorably on conciseness as well.
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 accident 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