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Acknowledgement of debt: The real implications

6th November 2013


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Mr A (debtor) and Mr B (creditor) enter into a credit agreement but Mr A defaults on his payments in terms of the agreement and he receives a letter of demand for immediate payment of the full amount outstanding.  Mr A cannot afford to pay the full amount and he contacts the creditor in the hope of reaching a settlement.  Mr A and Mr B negotiate a monthly payment plan and the creditor agrees to delay further legal action.  In return, he requires that Mr A sign a document entitled “Acknowledgement of Debt”.  Mr A gladly does so – he has just been given room to breathe, hasn’t he?  But what is it that he has signed?

An acknowledgement of debt, commonly referred to as an “AOD”, is a document which contains an unequivocal admission of liability by the debtor.  In it the debtor acknowledges that he or she owes a particular sum of money to the creditor and undertakes to repay what is owing.

An AOD requires no more than this in order for it to be legally valid and binding on the signatory.  All other terms that may be inserted in the document are incidental but generally they will be designed to protect the interests of the creditor.  For instance the AOD will usually provide that if the debtor fails to pay any one instalments of the debt, the whole amount will immediately become payable.

Thus an AOD is a tool commonly used by creditors when debtors owe them money because, chief among its strengths, is that it is a “liquid document”, one which proves a debt without any extraneous evidence.

Accordingly an AOD should enable the creditor to obtain a speedy judgment against the debtor without having to endure a lengthy trial in which all the facts relating to the original credit agreement may have to be proved by the creditor.  Judgment can simply be taken for the full amount reflected in the AOD because the court is faced with a document in which the debtor has expressly acknowledged that he owes the money.

Armed with the judgment the creditor may then issue a writ of execution against the debtor’s property to the value of the judgment debt and may have the debtor’s property attached to satisfy it.  All of which arises directly out of the AOD signed by the debtor.

Although a debtor may not always be in a position to refuse to sign an AOD, he should always understand the implications of doing so.

Written by Amanda Swanson, Candidate Attorney in the Litigation Department at Garlicke & Bousfield Inc. 

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NOTE: This information should not be regarded as legal advice and is merely provided for information purposes on various aspects of litigation.

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