Satisfaction and Release

Satisfaction and Release

Investopedia / Xiaojie Liu

What Is Satisfaction and Release?

Satisfaction and release is a document stating that a consumer has paid the full amount of debt that was owed to a creditor under a court judgment. A satisfaction and release prevents creditors from attempting to recover more money from the borrower or consumer.

A satisfaction and release document states the name of the creditor that has been paid, the date the full or final payment was received, and the name of the debtor (or borrower) who has fulfilled its obligation to the creditor. A satisfaction and release is important because it can help a borrower prove that the debt was paid off, which might help in getting approved for credit in the future. However, a judgment—whether satisfied or unsatisfied—can negatively impact a person's credit report.

Key Takeaways

  • Satisfaction and release states that a consumer has paid the full amount of debt that was owed to a creditor under a court judgment.
  • A satisfaction and release prevents creditors from attempting to recover more money from the borrower or consumer.
  • A satisfaction and release can help a borrower prove that the debt was paid off, which might help in getting approved for credit in the future.
  • A judgment—even if satisfied—can negatively impact a person's credit score and remains on a credit report for seven years.

Understanding Satisfaction and Release

If a creditor sues an individual because they have not paid a bill, and the creditor wins the lawsuit, the judge decides how much the consumer must pay the creditor. Once the borrower has met their obligations under the judgment—that is, once they have repaid the creditor the amount that the judge mandated—the creditor should sign a satisfaction and release.

The signed release, like the original judgment, becomes part of the public court record and should be reported to the credit bureaus so that the defendant's credit report will indicate that they have met their obligations under the judgment. A credit bureau is an agency that collects a person's credit history from lenders and creditors so that a credit report for a person can be generated.

The credit report is used by creditors to make a determination of whether a person is creditworthy enough to extend credit and by how much. A credit report can include the number of times a person has been late on their payments and the number of credit products or loans that are open or have been opened.

The report also shows any derogatory marks, such as judgments from not paying back a creditor. A person's overall credit history is condensed and represented as a numerical value called a credit score. The credit score calculation can vary depending on the specific credit bureau.

Also, there are many factors that can affect a person's credit score, and each credit bureau might apply a slightly different weighting to each of those factors from a person's credit history.

Judgments and Credit Scores

A judgment is a derogatory mark on a person's credit report. An unsatisfied judgment can negatively impact a credit score and reduce or prevent a person's ability to get approved for credit in the future. The level of impact on a credit score can vary, depending on the person's other credit history, but it's not out of the ordinary for a credit score to be reduced by 100 points or more. Even a satisfied judgment will negatively impact a credit report. However, a paid or satisfied judgment will hurt a credit score less than an unpaid one.

Even after a satisfaction and release has been generated, a satisfied judgment remains on a person's credit report for seven years. In other words, reporting agencies will not remove the history of the judgment once it's been paid. However, an individual can write to the various credit agencies and ask them to remove the judgment from their credit report, but the agencies are not obligated to do so, and usually the judgment remains for the seven-year period.

Benefits of Satisfaction and Release

A satisfaction and release document can be critical when the individual applies for credit later on after the judgment has been satisfied. Credit reports can have errors, and one of the credit reporting agencies might not have the judgment as being satisfied. As a result, the person might not get approved for a credit application. Although having a judgment on a person's credit report is a derogatory mark, a satisfaction and release can be helpful in such a situation.

The Debt Was Paid

Many people go through periods of financial distress, whether it's due to the loss of a job or medical issues that have put someone in a financial bind. Despite having a judgment on a credit report, a borrower can at least take some comfort that the satisfaction and release shows that the debt was paid. When applying for credit in the future, lenders want to see if a person is trustworthy enough to repay their debt. A satisfied judgment shows that the person didn't walk away from their debt obligations.

Also, there are many creditors that cater to folks with low credit scores, and eventually, a person might be able to obtain credit again—though the credit amount might be limited, and the interest rate will likely be higher than average.

Record Keeping

If an individual finds themselves delinquent on a debt, they need to keep excellent records of their interactions with creditors, debt collectors, and courts. One of the problems that can occur when a debt becomes past due is that the original creditor may not believe it can be repaid.

As a result, the original creditor might sell the debt to a debt collector. If the debt collector cannot collect the debt after some time has passed, the debt may be resold to another creditor or debt collector. The process of debt being sold and transferred to another debt collector can occur several times until the debt is finally repaid.

As a result, errors can occur in which debt collectors might have the wrong amount owed, past payments might not be recorded properly, and even who owns the debt can be a source of confusion. In some cases, debt collectors might pursue a borrower (called the debtor ) for debts they have already repaid or debts that are past the statute of limitations. Sometimes a debt that an individual never owed can show up on their credit history because they have a similar name or Social Security number to the person who actually owes the debt.

If a borrower receives a satisfaction and release document, it should be retained in their files along with physical and electronic backup copies. In this way, if a debt collector tries to collect a satisfied debt in the future due to an error, the borrower can prove they have already paid it.

Prevents Refiled Judgments

If a debt has not been paid and the judgment remains unsatisfied, the judgment can be refiled for another seven years after the initial seven-year period has passed. For this reason, it's critical for consumers to repay a debt and obtain a satisfaction and release since it prevents the judgment from being refiled and remaining on the person's credit report for another seven years.

If the judgment has been satisfied and it reappears on a person's credit report after seven years have passed, the borrower can use the satisfaction and release to prove to the credit bureau that the debt was paid or satisfied.