Credit is one of the cornerstones of modern capitalism. Credit enables people to spend money they don’t have. The use of credit and poor money management skills often leads people into a situation of over-indebtedness where they are unable to service credit agreements. This results in people finding themselves unable to pay off their debts and creditors demanding back what they have lent to debtors. An acknowledgement of debt (“AOD”) serves as great opportunity between the debtor and the creditor. It is a written agreement between a debtor and a creditor in terms of which the debtor agrees that he is unequivocally liable to the creditor for a sum of money. 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. The primary object of this “settlement negotiation” is to avoid litigation and to ultimately settle the matter amicably. This therefore serves positively on the debtor because instead of having judgments against you as the debtor, you are given an opportunity to pay off your debt in instalments and pay amounts that you can afford.

While it is true that the benefits of an AOD lie mostly with the creditor, it cannot be disregarded that signing an AOD provides some form of protection to the debtor as well. Instead of the creditor requiring you pay the full debt, the creditor provides you with an opportunity to pay in instalments of which you have the ability to negotiate and agree on an affordable amount that works specifically for you as the debtor. This is why it makes no sense to avoid the creditor and refuse to the sign the AOD.

The often spread myth which serves as a disadvantage to debtors is that once you “default” on a signed AOD, the AOD serves as a liquid document, which means that it proves a debt without any need for additional evidence, entitling a creditor to obtain a court judgment summarily. The untrue myths mislead debtors into thinking that without the AOD, the creditor would be required to lead evidence in order to prove the debt. Whilst the presence of an AOD may be to the advantage of the creditor, it’s also serves to the benefit of the debtor in case of litigation to show to the court that the debtor was cooperative with the creditor in an attempt to pay off the debt. Debtors must be aware that courts do not take likely to debtors who intentionally and wilfully work against the creditor. The AOD serves as just that, a person who is struggling to make ends meet but is willing to pay.

It is common practice for a creditor to suggest that a debtor sign an AOD allowing him to pay back the amount owed to the creditor in instalments, however the debtor struggling to pay should not wait for the creditor to take the first step but can approach the creditor and make a payment plan which suits the debtor. Creditors, while warranted, have been set out as unreasonable and money-hungry savages but this could not be any further from the truth. Creditors are understanding provided debtors are honest and stay in communication. It is, therefore, imperative that a debtor understands the benefits of entering into an AOD which he may not be all too eager to sign however actually serves to his benefit. Debtors struggling to make payment are advised to contact their creditors and make alternative arrangements to pay off the debt. Any creditor who acts unreasonable will be at a disadvantage should the matter ever go to court.

Written by Sinethemba Cele (LLB UKZN), Legal Practitioner at HSG Inc Attorneys