Flathmann & Stern

Restrictive Endorsements

What is a restrictive endorsement and when should you use one?  A restrictive endorsement, also known as an endorsement limiting another endorsement, is on the back of a check and limits how a check can be handled.  This can be as simple as the statement, “for deposit only,” which means that the check cannot be cashed and only deposited.

A restrictive endorsement can also be used by a debtor when paying off an old debt.  A debtor will write on the back of a check that they are sending to the creditor a typical statement like this, “Depositing of the funds constitutes acceptance of the enclosed settlement agreement and full satisfaction of the debt described.”  What would happen if the creditor deposited this check?  The outstanding debt would cease and the debtor would be clear of any legal requirement to pay any more money.

This is good for a debtor, but if a creditor, whether a collection agency or company cashes the check without reading the restrictive endorsement then they could void the money they are owed.

Debtors must always send an accompanying letter in advance of the check with the restrictive endorsement.  Without this, then the legal system will most always overturn the ruling in favor of the creditor.  The terms and decision to settle must always be thoroughly noted for both parties.

As a collection agency or business looking to get their unpaid debts paid, it is always best to understand the tactics that debtors use to overcome their outstanding debt.  A restrictive endorsement is not always a bad thing.  Remember that some money is better than no money, just make sure that you always do your due diligence.

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