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Assignment of Debt

By
John Kafrouni
08 Sep 2018
•
5
min read

What is it?

An assignment of debt is an agreement that transfers a debt, and all of the legal rights and obligations attached to it, from the creditor to a third party. The third party may be an individual or a company, such as a debt collection agency.

Application for small business people

Small business people may find themselves owing money to people that they have worked with, such as suppliers. In certain situations, particularly if the small business owner has been delayed in making repayments, the debt may be assigned to a new creditor. The small business owner will still be liable to pay the outstanding amount, but they will be now paying it to a different person or company.

When a debt has been assigned, it is essential that the debtor is adequately informed of the identity of the new creditor and how they are to make future payments. It is also a good idea for the debtor to double check that the new creditor has been given the correct information, in terms of the balance outstanding and the arrangements made for minimum monthly payments.

Small businesses may also be owed money that they are finding difficult to recover from debtors. This can be frustrating, time-consuming, and also reflect badly on the businesses asset summary. To alleviate these problems, they may wish to sell the debts to a collection agency that will be more experienced and better equipped to recuperate the payments.

It is important to be aware legislation operates in relation to the assignment of debt to protect the rights of debtors.

6 key things to consider

Prior to a debt being assigned, it is essential to consider the following six key factors:

  1. Does the original contract between the parties allow for assignment?
  2. Have the legislative requirements been complied with?
  3. Has the debtor been informed of the assignment of debt and the new payment procedure?
  4. Do the interest obligations under the original contract continue to apply?
  5. Has a payment plan been agreed to with the debtor?
  6. What is the consideration (payment) for the assignment and is there a warranty attached?

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.

Liability limited by a scheme approved under professional standards legislation.

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