What to Do If You Receive a Demand Letter

You open your mail and find a formal letter demanding you pay money or take some action. Your heart rate jumps. That's normal.

But take a breath. A demand letter is not a lawsuit. It's not a court order. It's someone telling you they have a complaint and giving you a chance to resolve it before things escalate. In fact, it's the best-case scenario compared to being served with a lawsuit out of nowhere.

Here's exactly what to do.

Step 1: Don't Panic

First things first: a demand letter has no legal power on its own. It's not a court summons, it's not a subpoena, and it's not a judgment. Nobody is going to freeze your bank account or put a lien on your property because of a demand letter.

What it IS:

• A formal complaint from someone who believes you owe them something
• A signal that they're considering legal action
• An opportunity for you to resolve this without court
• Often the first (and sometimes only) step before a lawsuit

Step 2: Read It Carefully

Read the entire letter. Then read it again. You're looking for specific details:

Note the Key Elements:

• Who sent it? Is it from an individual, a business, or a lawyer?
• What are they claiming? What do they say happened?
• What do they want? A specific dollar amount? An action you need to take?
• What's the deadline? How much time do you have to respond?
• What laws do they cite? Are there specific statutes referenced?
• What do they threaten? Small claims court? A regulatory complaint? A lawsuit?

Important: Note the Date

When was the letter dated? When did you receive it? The response deadline usually runs from receipt, not from when the letter was written. Mark the deadline on your calendar immediately.

Step 3: Evaluate the Claim Honestly

This is the hard part. Set aside your emotions and ask yourself objectively:

Is the Claim Valid?

• Do you actually owe this person money?
• Did you breach a contract or agreement?
• Did you cause the harm they're describing?
• Are the facts they describe accurate?

Is the Amount Reasonable?

• Does the dollar amount match what you would owe?
• Are they including penalties or damages beyond the base amount?
• Are those penalties authorized by law or contract?

Do They Have Evidence?

If the letter references specific documents, contracts, photos, or communications, they likely have evidence supporting their claim. If the letter is vague and references no documentation, the claim may be weaker than it sounds.

Step 4: Choose Your Response

Option A: Pay the Demand

If the claim is valid and the amount is fair, paying may be your best move. You avoid court costs, time off work, potential credit damage, and the stress of litigation.

If you pay: Get a written receipt and a release stating the matter is resolved. Never pay without documentation that the dispute is settled.

Option B: Negotiate

If you owe something but the amount is wrong, or you can't pay the full amount at once, propose a counter-offer:

• A lower amount with reasons why (e.g., "I agree I owe $2,000 for the work performed but not the $1,000 in 'rush fees' that were never agreed to")
• A payment plan (e.g., "I can pay $500/month for 4 months")
• A mutual release ("I'll pay $X and we both agree the matter is fully resolved")

Option C: Dispute the Claim

If you genuinely believe the claim is wrong, respond in writing explaining why:

• Stick to facts, not emotions
• Reference your own documentation
• Address each point in their letter specifically
• State clearly that you dispute the claim and why

Option D: Ignore It (Usually a Bad Idea)

You can technically ignore a demand letter, since it's not a legal requirement to respond. But read the section below on why this is almost always the wrong choice.

Do You Need a Lawyer?

Not always. Here's a quick guide:

You Probably Don't Need a Lawyer If:

• The claim is for a small amount (under $5,000-$10,000)
• The facts are straightforward and you know what happened
• The letter is from an individual, not a law firm
• You plan to pay or negotiate a settlement

Consider Getting a Lawyer If:

• The claim is for a large amount ($10,000+)
• The letter comes from an attorney
• You don't understand the legal citations or claims
• You believe you have a strong defense or counterclaim
• The dispute involves complex legal issues (employment law, insurance, contracts)
• You're a business receiving a demand related to your operations

What NOT to Do

Don't Respond in Anger

A furious phone call or a threatening text message will only escalate the situation. Anything you say can potentially be used against you in court.

Don't Admit Fault Casually

"I know, I'm sorry, I'll get to it" in an email could be used as an admission in court. Be careful with your words. Acknowledging receipt is fine. Admitting liability without thinking it through is not.

Don't Destroy Evidence

If there are contracts, emails, texts, or other documents related to the dispute, keep everything. Destroying evidence can have serious legal consequences and looks terrible to a judge.

Don't Post About It on Social Media

Anything you post publicly about the dispute can be used against you. Don't vent about it online.

Don't Wait Until the Last Minute

Respond before the deadline. A late response suggests you don't take the matter seriously.

What Happens If You Ignore It?

Technically, nothing happens immediately from ignoring a demand letter. But here's what usually follows:

1. They file a lawsuit. If the sender is serious (and they've taken the time to write a formal demand letter, so they probably are), a lawsuit is coming. You'll be served with court papers, and now you MUST respond or face a default judgment.
2. You lose leverage. The demand letter was your chance to negotiate and potentially settle for less. In court, they'll ask for the full amount plus court costs and potentially attorney's fees.
3. It looks bad in court. The judge will see that the sender tried to resolve this reasonably and you refused to engage. That's not a great look.
4. Potential enhanced damages. In states like Massachusetts (93A), failing to respond to a demand letter can result in treble damages (triple the original amount) and attorney's fees.

Key Takeaways

• A demand letter is NOT a lawsuit, a court order, or a legal judgment
• Always read the letter carefully and note the response deadline
• Evaluate the claim honestly - settling is often cheaper than fighting
• You have four options: pay, negotiate, dispute, or ignore (ignoring is usually the worst choice)
• You may not need a lawyer for small claims under $10,000
• Never respond in anger, admit fault casually, or destroy related evidence

Related Articles

• How Long Does Someone Have to Respond to a Demand Letter?
• What Happens After You Send a Demand Letter?
• Do Demand Letters Work?
• Demand Letter vs. Cease and Desist