Can A Creditor Add A Penalty Clause?

Sometimes a creditor will refuse to believe the debtors promises of payment. This often happens if the debtor has been unable to keep up with a previous payment agreement. In that case, creditors might be persuaded to accept a new repayment plan if the debtor offers to include a penalty clause in the agreement. Such a provision states that if the debtor defaults in making any of the agreed­upon payments, they owe the creditor an amount of money in addition to the original debt. The amount of such a penalty should be sizable (probably no less than $100.00), to serve as a real incentive for the debtor to keep current on their payments. Offering to include such a penalty clause demonstrates their honest intent to pay.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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