How to Write an Insolvent Letter to Debt Collectors or Other Lenders

If you don't have the income or assets to pay down your debts, you can write your creditor a letter informing them that you're unable to pay. The letter doesn't have to be long or detailed -- a basic statement that you're unable to make payments at this time will suffice -- but it's important not to acknowledge the debt and it can be helpful to explain the type of income you receive.

Date the letter and address it to to your debt collector. If you're sending it to another lender, write Attention: Credit Department under the lender name.

Include your full account number at the beginning of the letter so the creditor can identify you.

Get right to the point. In your first sentence, note that the creditor has contacted you about a debt that you allegedly owe. In the next sentence, explain that your income is not sufficient to pay the alleged debt at this time. NoMoreDebts.org recommends that you note what type of income you're receiving, for example, Social Security, job wages, unemployment wages or other government assistance.

Some types of income or benefits, like unemployment benefits, public assistance, child support, spousal maintenance and retirement benefits are exempt from garnishment. That means, even if a creditor sued you, it would not be able to garnish this income.

Contact a your local legal aid or nonprofit legal center to learn if your income and assets might be exempt from garnishment. If your income, benefits or support are nongarnishable, Montana Law Help recommends that you say so in the letter. For example, you could say, My income is exempt from sale or garnishment, which means that you cannot collect it even with a court order.

Creditors -- debt collectors in particular -- have a reputation for contacting debtors frequently and repeatedly for payment. Federal law requires the bill collector to cease contacting you if you request that they do so.

If you don't want to hear from this creditor anymore, add a sentence at the end of the letter asking that the creditor stop all contact. Write something like I request that you stop contacting me regarding this account as required by the Fair Debt Collection Practice Act.

Sign and Send

Sign the letter and print your name. Montana Law Help recommends that you send the letter via certified mail and pay for a return receipt. This costs a few dollars extra, but it forces the creditor to sign a receipt when he receives the letter. You'll receive the receipt in the mail.

Retain this receipt for your records; it can be important if the creditor sues you and you need to prove you contacted him.