debt assignment define

What is an Assignment of Debt?

By Vanessa Swain Senior Lawyer

Updated on February 22, 2023 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

Perfecting Assignment

• Enforcing an Assigned Debt 

Recovery of an Assigned Debt

• Other Considerations 

Key Takeaways

Frequently asked questions.

I t is common for creditors, such as banks and other financiers, to assign their debt to a third party. Usually, an assig nment of debt is done in an effort to minimise the costs of recovery where a debtor has been delinquent for some time. This article looks at:

• what it means to ‘assign a debt’;
• the legal requirements to perfecting an assignment; and
• common problems with enforcing an assigned debt. 

Whether you’re a small business owner or the Chief Financial Officer of an ASX-listed company, one fact remains: your customers need to pay you.

This manual aims to help business owners, financial controllers and credit managers best manage and recover their debt.

An assignment of debt, in simple terms, is an agreement that transfers a debt owed to one entity, to another. A creditor does not need the consent of the debtor to assign a debt.

Once a debt is properly assigned, all rights and responsibilities of the original creditor (the assignor ) transfer to the new owner (the assignee ). Once an assignment of debt has been perfected, the assignee can collect the full amount of the debt owed . This includes interest recoverable under the original contract, as if they were the original creditor. A debtor is still responsible for paying the outstanding debt after an assignment. However, now, the debt or must pay the debt to the assignee rather than the original creditor.

Purchasing debt can be a lucrative business. Creditors will generally sell debt at a loss, for example, 20c for each dollar owed. Although, the amount paid will vary depending on factors such as the age of the debt and the likelihood of recovery. This can be a tax write off for the assignor, while the assignee can take steps to recover 100% of the debt owed. 

In New South Wales, the requirements for a legally binding assignment of debt are set out in the Conveyancing Act :

• the assignment must be in writing. You do this in the form of a deed (deed of assignment) and both the assignor and assignee sign it; and
• the assignor must provide notice to the debtor. The requirement for notice must be express and must be in writing. The assignor must notify the debtor advising them of the debt’ s assign ment and to who it has been assigned. The assignee will send a separate notice to the debtor, putting them on notice that the debt is due and payable. They will also provide them with the necessary information to make payment. 

The assignor must send the notices to the debtor’s last known address.  

Debtor as a Joined Party

In some circumstances, a debtor will be joined as a party to the deed of assignment . There can be a great benefit in this approach . This is because the debtor can provide warranties that the debt is owed and has clear notice of the assignment. However, it is not always practical to do so for a few reasons:

• a debtor may not be on speaking terms with the assignor; 
• a debtor may not be prepared to co-operate or provide appropriate warranties; and
• the assignor or the assignee may not want the debtor to be made aware of the sale price . This occurs particularly where the sale price is at a significant discount.

If the debtor is not a party to the deed of assignment, proper notice of the assignment must be provided.  

An assignment of debt that has not been properly perfected will not constitute a legal debt owing to the assignee. Rather, the legal right to recover the debt will remain with the assignor. Only an equitable interest in the debt will transfer to the assignee.  

Enforcing an Assigned Debt 

After validly assigning a debt (in writing and notice has been provided to the debtor’s last known place of residence), the assignee is entitled to take any legal steps available to them to recover the outstanding debt. These recovery options include:

• commencing court proceedings;
• obtaining a judgment; and 
• enforcement of that judgment.

Suppose court proceedings have been commenced or judgment already entered in favour of the assignor. In that case, the assignee must take steps to have the proceedings or judgment formally changed into the assignee’s name.  

In our experience, recovery of an assigned debt can be problematic because:  

• debtors often do not understand the concept of debt assignment and may not be aware that their credit contract contains an assignment of debt clause;
• disputes can arise as to whether a lawful assignment of debt has arisen. A debtor may claim that the assignor did not provide them with the requisite notice of the assignment, or in some cases, a contract will specifically exclude the creditor from legally assigning a debt;
• proper records of the notice of assignment provided to the debtor must be maintained. If proper records have not been kept, it may be difficult to prove that notice has been properly given, which may invalidate the legal assignment; and
• the debtor has the right to make an offsetting claim in defence to any recovery action taken by the assignee. A debtor may raise an offsetting claim which has arisen out of a previous arrangement with the assignor (which the assignee may not be aware of). For example, the debtor may have entered into an agreement with the assignor whereby the assignor agreed to accept a lesser amount of the debt owed by way of settlement. Because the assignee acquires the same rights and obligations of the assignor, the terms of that previous settlement agreement will bind the assignee. The court may find that there is no debt owing by the debtor. In this case, the assignee will have been assigned nothing of value. 

Other Considerations 

When assigning a debt, it is essential that the assignee, in particular, considers relevant statutory limitation periods for commencing proceedings or enforcing a judgment debt . In New South Wales, the time limit:

• to file legal proceedings to recover debts is six years from the date of last payment or when the debtor admitted in writing that they owed the debt; and
• for enforcing a judgment debt is 12 years from the date of judgment.

An assignment of a debt does not extend these limitation periods.  

While there can be benefits to both the assignor and the assignee, an assignment of debt will be unenforceable if done incorrectly. Therefore, if you are considering assigning or being assigned a debt, it is important to seek legal advice. If you need help with drafting or reviewing a deed of assignment or wish to recover a debt that has been assigned to you, contact LegalVision’s debt recovery lawyers on 1300 544 755 or fill out the form on this page.  

An assignment of debt is an agreement that transfers a debt owed to one entity, to another. A creditor does not need the consent of the debtor to assign a debt.

Once the assignee has validly assigned a debt, they are entitled to take any legal steps available to them to recover the outstanding debt. This includes commencing court proceedings, obtaining a judgment and enforcement of that judgment.

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Assignment Of Debt

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What is an assignment of debt.

Assignment of debt is an agreement that transfer debt, rights, and obligations from a creditor to a third party. Assignment of debt agreements are commonly found when a creditor issues past due debt to a debt collection agency. The original lender will be relieved of all obligations and the agency will become the new owner of the debt. Debt assignment allows creditors to improve liquidity by reducing their financial risk. If a creditor has taken on a large amount of unsecured debt, an assignment of debt agreement is a quick way to transfer some of the unsecured loans to another party.

Common Sections in Assignments Of Debt

Below is a list of common sections included in Assignments Of Debt. These sections are linked to the below sample agreement for you to explore.

Assignment Of Debt Sample

Reference : Security Exchange Commission - Edgar Database, EX-10 19 ex107.htm ASSIGNMENT OF DEBT AND SECURITY , Viewed October 25, 2021, View Source on SEC .

Who Helps With Assignments Of Debt?

Lawyers with backgrounds working on assignments of debt work with clients to help. Do you need help with an assignment of debt?

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Orly Boger has worked in the high tech industry and in a leading law firm before launching her law firm. Orly focuses on startup companies and technology transactions. She structures and negotiates software and technology license agreements, strategic partnerships, cloud-based/SaaS agreements, internet related transactions, OEM agreements, supply, distribution, telecommunications. In addition, Orly has experience in serving as an in-house legal counsel for start up companies at various phases of their development, providing strategic legal advise to entrepreneurs and emerging companies with a comprehensive understanding of the business and legal issues. She has been helping companies develop a legal strategy for all aspects of their operations, from commercial transactions and partnerships, scalable SaaS or services agreements, privacy policies, employment related policies, open source licensing and much more.

Corporate attorney with 14+ years of in-house counsel, people leadership and client management experience. Provides legal expertise and a business-oriented approach to problem solving and building lines of business. Consistently works under pressure, prioritizing and managing workload and simultaneous tasks to meet deadlines in a changing, fast-paced environment.

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Jerry provides legal advice to business owners regarding contracts, business law, labor & employment, wills and estates, and real estate.

Seasoned professional with experience in wide variety of contract negotiation and review.

I have been in practice for over 19 years. I have substantial experience across the spectrum of civil practice areas both as a litigator and transactional counsel. This includes: negotiating commercial and real estate transactions, corporate organization, commercial agreements, and resolving commercial disputes, and litigating numerous civil, administrative, and criminal cases through all phases of litigation from trial through appeal, as well as judgment enforcement. My vast experience as a litigator is an asset to my transactional clients. My background in Investigating and proving the breakdown of business relationships in court allows me a unique advantage in drafting, negotiating, and closing business transactions.

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What Is an Assignment of Debt?

George Simons | December 02, 2022

Co-Founder of SoloSuit George Simons, JD/MBA

George Simons is the co-founder and CEO of SoloSuit. He has helped Americans protect over $1 billion from predatory debt lawsuits. George graduated from BYU Law school in 2020 with a JD-MBA. In his spare time, George likes to cook, because he likes to eat.

Edited by Hannah Locklear

Editor at SoloSuit Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Have a debt collection agency coming after you for a past due account? Not convinced that they have the right to sue you? Learn about the assignment of debt and how you can beat a debt collector in court.

Assignment of debt means that the debt has been transferred, including all obligations and rights, from the creditor to another party. The debt assignment means there has been a legal transfer to another party, who now owns the debt. Usually, the debt assignment involves a debt collector who takes the responsibility to collect your debt.

How does a debt assignment work?

When the creditor lends you money, it does so thinking that what it lends you as well as interest will be paid back according to the legal agreement. The lender will wait to get the money back according to the contract.

When the debt is assigned to another party, you must be notified when it happens so you know who owns the debt and where to send your payments. If you send payments to the previous creditor, the payments probably will be rejected and you could default.

When the debtor gets this notice, it's wise for them to check that the creditor has the right balance and the payment that you should pay each month. Sometimes, you may be able to offer changes to the terms of the loan. If you decide to try this, the creditor must respond.

Respond to debt collection lawsuit in 15 minutes with SoloSuit.

Why creditors assign debts

Note that debt assignments and debt collectors must adhere to the Fair Debt Collection Practices Act . This is a law overseen by the FTC that restricts when the debtor can contact you and how. For example, they only can call you between 8 am and 9 pm and they cannot call you at work if you tell them not to do so.

If the FDCPA is broken by the debt collector, you can file a countersuit and may get them to pay damages and your attorney fees.

There are many reasons why the creditor may assign a debt. The most common reason is to boost their liquidity and reduce risk. The creditor could need capital, so they'll sell off some of their debts to debt collection companies.

Also, the creditor may have many higher-risk loans and they could be worried they could have a lot of defaults. In these situations, the creditor may be ok with selling debts for pennies on the dollar if it enhances their financial outlook and reassures investors.

Or, the creditor may think the debt is too old to worry about and may not assign it at all.

Different perspectives on debt assignment

Debt assignment is often criticized, especially in the past 30 years. Debt buyers often engage in shady practices. For example, some debt collectors may call consumers in the middle of the night and harass them to pay debts. Or, they may call friends and family looking for you. Some debt collectors even use foul language with consumers and threaten them.

Sometimes the debt is sold several times, so the consumer is chased for a debt she doesn't owe. Or, the debt amount could be different than what the debt collector claims.

Don't let debt collectors harass you. Respond with SoloSuit.

What to do if a debt collector comes after you

If you owe a debt and the debt has been assigned to a debt collector, you may be getting a lot of phone calls at all hours to get you to pay what you allegedly owe. This can continue for months or even years.

Sometimes, you can just ignore the phone calls and nothing happens. However, if enough money is involved, the debt collector could file a lawsuit against you. The worst thing you can do in this situation is to ignore the lawsuit.

What you should do is use the debt assignment game against them. What happens is this: The debt was probably sold a few times. You want to make the debt collector prove that the debt is yours and that you owe what they say you owe.

When the debt has been sold several times, it can be difficult for them to track down all that paperwork. You need to respond to the lawsuit by filing an answer with your clerk of court and then mail that answer to the debt collector by certified mail.

If you are being pursued for a debt that has been purchased by a third party debt buyer, there is a good chance you can get the issue resolved fairly easily. For example, in many instances, you may be able to negotiate a fairly low settlement on the debt, if you prefer to do so. This is because many companies who specialize in debt assignments actually purchased the debt for pennies on the dollar and are not actually looking to collect on the full amount owed.

Even if you cannot negotiate a settlement, make sure to log all of your interaction with the debt buyer since the collection agents they employ are notorious for routinely violating provisions contained within the FDCPA, which means you may have grounds to file a counterclaim and demand compensatory damages.

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

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>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

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What is a Debt Assignment?

Debt assignment is a procedure that transfers debt from an original creditor to a new creditor. By contrast, in debt assumption, a new debtor takes over an existing debt from the previous debtor, absolving the original debtor of any responsibilities associated with the debt. For debt assignment, debtors are not consulted and they do not need to authorize or approve the transfer. By contrast, people cannot assume debts without permission from the creditor, as the creditor wants to confirm that the person taking over the debt has the ability to repay it.

There are a number of reasons for debt assignment to take place. Some creditors regularly sell their accounts to third parties, allowing them to collect the full amount of the debt months or years before the total is due to be repaid. These companies realize a small profit from the sale of the debt in addition to receiving payment in full. Other creditors may package and sell different types of debts, such as high risk loans that they want to get rid of, often with the goal of improving their financial outlook. It is also possible to assign debts to subsidiaries to clean up the books at a parent company, an accounting practice that is sometimes used to conceal bad debts or to obscure the truth of a company's finances.

Companies that offer loans must consider the way those loans appear on the books. If a lot of a company's capital is tied up in loans and a company has many nonperforming or high risk loans, it has low liquidity and may be endangered by changes in the economy or mass defaults. Such companies are not appealing to investors and they can raise concerns among regulators and other interested parties. For these companies, debt assignment allows them to increase their liquidity and clean up their books, creating a more appealing financial profile.

When debt assignment takes place, the debtor is notified about the change in creditors. Contact and payment information for the new creditor must be sent, along with any changes in terms that are associated with the transfer. Likewise, if the creditor wants to change the terms at some later date, notifications must also be sent in a timely fashion to give the debtor an opportunity to respond. The same legal rights and protections for the debtor that applied to the relationship with the original creditor are still in force.

If a notice informing a debtor that debts have been transferred is received, it is advisable to contact the original creditor to confirm the transfer and to get accurate contact information for the new creditor. This information should be kept on file so that people know how to contact their creditors. The new creditor should also send out a package with information including privacy agreements and contact information.

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Debt Assignment and Assumption Agreement

Rating: 4.7 - 23 votes

A Debt Assignment and Assumption Agreement is a very simple document whereby one party assigns their debt to another party, and the other party agrees to take that debt on. The party that is assigning the debt is the original debtor; they are called the assignor. The party that is assuming the debt is the new debtor; they are called the assignee.

The debt is owed to a creditor.

This document is different than a Debt Settlement Agreement , because there, the original debtor has paid back all of the debt and is now free and clear. Here, the debt still stands, but it will just be owed to the creditor by another party.

This is also different than a Debt Acknowledgment Form , because there, the original debtor is simply signing a document acknowledging their debt.

How to use this document

This document is extremely short and to-the-point. It contains just the identities of the parties, the terms of the debt, the debt amount, and the signatures. It is auto-populated with some important contract terms to make this a complete agreement.

When this document is filled out, it should be printed, signed by the assignor and the creditor, and then signed by the assignee in front of a notary. It is important to have the assignee's signature notarized, because that is the party that is taking on the debt.

Applicable law

Debt Assignment and Assumption Agreements are generally covered by the state law where the debt was originally incurred.

How to modify the template

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.

Other names for the document:

Agreement to Assign Debt, Agreement to Assume Debt, Assignment and Assumption of Debt, Assumption and Assignment of Debt Agreement, Debt Assignment Agreement

Country: United States

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What is an Assignment of Debt?

By Sej Lamba

Updated on 26 February 2024 Reading time: 5 minutes

This article meets our strict editorial principles. Our lawyers, experienced writers and legally trained editorial team put every effort into ensuring the information published on our website is accurate. We encourage you to seek independent legal advice. Learn more .

When Could an Assignment of Debt Happen?

Key issues on assignment of debt, drafting the correct documentation, giving notice, key takeaways.

Debts are increasingly common in today’s financial climate, and unfortunately, many people struggle to repay what they owe. Debts owed can be sold to third parties and a lot of companies in the UK purchase debts. However, this can be complicated as specific legal formalities apply when assigning debts. This article will explain some of the critical issues around the assignment of debt. 

Debt collection can be a complex process. There are various reasons as to why debt is assigned. For example, a company owed debt may want to avoid putting in time and effort to chase it or want to take legal action to recover it. 

To picture a scenario, imagine this:

• Joe Bloggs gets a brand-new shiny credit card. Joe purchases lots of nice things for his family with the credit card. Usually, he can keep up with payments as he keeps track of them and earns enough to pay them back;
• suddenly, Joe has an injury and cannot work anymore. He has to give up his job and now can’t afford to pay the credit card company back;
• Joe ignores various letters chasing the debt and hopes the problem will disappear. Ultimately, after months, the credit card company gives up and sells Joe’s debt to a debt collection agency.  

So, in summary – after the debt sale, Joe now owes money to a different company. 

In practice, debt assignments can be complex, and the parties must follow the relevant legal rules and draft the correct documentation.

An assignment of debt essentially transfers the debt from one party (the assignor) to a third party (an assignee). 

In practice, this will mean the original debtor (e.g. Joe Bloggs) will now owe the debt to a new third-party creditor (e.g. the debt collection business). Therefore, in the scenario above, Joe must now repay the debt to the third-party debt collection business.

This process can be complex. There have been several legal cases in the courts where this process has given rise to disputes.

There are two different types of assignment of debt – a legal assignment of debt and an equitable assignment of debt. 

In simple terms:

• a legal assignment of debt will transfer the right for enforcement of the debt; and
• an equitable assignment of debt will transfer only the benefit of the debt without the right to enforce it. 

Let us explore each type below.

Legal Assignment of Debt 

If the assignment complies with specific legal requirements under the Law of Property Act 1925, it will be a ‘legal assignment’. This means that the assignee will be the new owner of the debt. 

A legal assignment requires various formalities to be effective. For example, it must:

• be in writing and signed by the assignor;
• the debtor must be given written notice of the assignment;
• be absolute with no conditions attached to it;
• relate to the whole of the debt and not just part of it; and
• not be a charge.

After the transfer of the debt, the assignor can sue the debtor in its own name. 

Equitable Assignment of Debt

It is also possible to have an equitable debt transfer – the requirements for this are much less strict. For example, this can be done informally by the assignor informing the assignee that the rights are transferred to them. 

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For an equitable assignment, giving notice is not essential, but still always highly advisable. 

Where an equitable assignment is made, the assignee won’t have the right to pursue court action for the debt. In this case, the assignee will have to join forces with the assignor to sue for the debt to sue for the debt. 

The debtor should receive notice of any debt transfer so they know to whom the money is owed. Following notice, the new debt owner can pursue the debt owed. 

A legal assignment is the best option for an assignee of debt – this will give them full rights to enforce the debt. 

Assignments of debts can be very complex. For a legal assignment of debt, you need to follow various formalities. Otherwise, it may be unenforceable and lead to disputes. If you need help executing a debt assignment correctly, you should seek legal advice from an experienced lawyer.

If you need help with an assignment of debt, LegalVision’s experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page .

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Assigning debts and other contractual claims - not as easy as first thought

Harking back to law school, we had a thirst for new black letter law. Section 136 of the Law of the Property Act 1925 kindly obliged. This lays down the conditions which need to be satisfied for an effective legal assignment of a chose in action (such as a debt). We won’t bore you with the detail, but suffice to say that what’s important is that a legal assignment must be in writing and signed by the assignor, must be absolute (i.e. no conditions attached) and crucially that written notice of the assignment must be given to the debtor.

When assigning debts, it’s worth remembering that you can’t legally assign part of a debt – any attempt to do so will take effect as an equitable assignment. The main practical difference between a legal and an equitable assignment is that the assignor will need to be joined in any legal proceedings in relation to the assigned debt (e.g. an attempt to recover that part of the debt).

Recent cases which tell another story

Why bother telling you the above?  Aside from our delight in remembering the joys of debating the merits of legal and equitable assignments (ehem), it’s worth revisiting our textbooks in the context of three recent cases. Although at first blush the statutory conditions for a legal assignment seem quite straightforward, attempts to assign contractual claims such as debts continue to throw up legal disputes:

• In  Sumitomo Mitsui Banking Corp Europe Ltd v Euler Hermes Europe SA (NV) [2019] EWHC 2250 (Comm),  the High Court held that a performance bond issued under a construction contract was not effectively assigned despite the surety acknowledging a notice of assignment of the bond. Sadly, the notice of assignment failed to meet the requirements under the bond instrument that the assignee confirm its acceptance of a provision in the bond that required the employer to repay the surety in the event of an overpayment. This case highlights the importance of ensuring any purported assignment meets any conditions stipulated in the underlying documents.
• In  Promontoria (Henrico) Ltd v Melton [2019] EWHC 2243 (Ch) (26 June 2019) , the High Court held that an assignment of a facility agreement and legal charges was valid, even though the debt assigned had to be identified by considering external evidence. The deed of assignment in question listed the assets subject to assignment, but was illegible to the extent that the debtor’s name could not be deciphered. The court got comfortable that there had been an effective assignment, given the following factors: (i) the lender had notified the borrower of its intention to assign the loan to the assignee; (ii) following the assignment, the lender had made no demand for repayment; (iii) a manager of the assignee had given a statement that the loan had been assigned and the borrower had accepted in evidence that he was aware of the assignment. Fortunately for the assignee, a second notice of assignment - which was invalid because it contained an incorrect date of assignment - did not invalidate the earlier assignment, which was found to be effective. The court took a practical and commercial view of the circumstances, although we recommend ensuring that your assignment documents clearly reflect what the parties intend!
• Finally, in Nicoll v Promontoria (Ram 2) Ltd [2019] EWHC 2410 (Ch),  the High Court held that a notice of assignment of a debt given to a debtor was valid, even though the effective date of assignment stated in the notice could not be verified by the debtor. The case concerned a debt assigned by the Co-op Bank to Promontoria and a joint notice given by assignor and assignee to the debtor that the debt had been assigned “on and with effect from 29 July 2016”. A subsequent statutory demand served by Promontoria on the debtor for the outstanding sums was disputed on the basis that the notice of assignment was invalid because it contained an incorrect date of assignment. Whilst accepting that the documentation was incapable of verifying with certainty the date of assignment, the Court held that the joint notice clearly showed that both parties had agreed that an assignment had taken place and was valid. This decision suggests that mistakes as to the date of assignment in a notice of assignment may not necessarily be fatal, if it is otherwise clear that the debt has been assigned.

The conclusion from the above? Maybe it’s not quite as easy as first thought to get an assignment right. Make sure you follow all of the conditions for a legal assignment according to the underlying contract and ensure your assignment documentation is clear.

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The Law Dictionary

DEBT ASSIGNMENT

TheLaw.com Law Dictionary & Black's Law Dictionary 2nd Ed.

The transfer of debt or debt accounts from a creditor to a third party so as to absolve the debt account owner from debt to the third party. An assignment of debt accounts.

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Assignment is a legal term whereby an individual, the “assignor,” transfers rights, property, or other benefits to another known as the “ assignee .”   This concept is used in both contract and property law.  The term can refer to either the act of transfer or the rights /property/benefits being transferred.

Contract Law   

Under contract law, assignment of a contract is both: (1) an assignment of rights; and (2) a delegation of duties , in the absence of evidence otherwise.  For example, if A contracts with B to teach B guitar for $50, A can assign this contract to C.  That is, this assignment is both: (1) an assignment of A’s rights under the contract to the $50; and (2) a delegation of A’s duty to teach guitar to C.  In this example, A is both the “assignor” and the “delegee” who d elegates the duties to another (C), C is known as the “ obligor ” who must perform the obligations to the assignee , and B is the “ assignee ” who is owed duties and is liable to the “ obligor ”.

(1) Assignment of Rights/Duties Under Contract Law

There are a few notable rules regarding assignments under contract law.  First, if an individual has not yet secured the contract to perform duties to another, he/she cannot assign his/her future right to an assignee .  That is, if A has not yet contracted with B to teach B guitar, A cannot assign his/her rights to C.  Second, rights cannot be assigned when they materially change the obligor ’s duty and rights.  Third, the obligor can sue the assignee directly if the assignee does not pay him/her.  Following the previous example, this means that C ( obligor ) can sue B ( assignee ) if C teaches guitar to B, but B does not pay C $50 in return.

            (2) Delegation of Duties

If the promised performance requires a rare genius or skill, then the delegee cannot delegate it to the obligor.  It can only be delegated if the promised performance is more commonplace.  Further, an obligee can sue if the assignee does not perform.  However, the delegee is secondarily liable unless there has been an express release of the delegee.  That is, if B does want C to teach guitar but C refuses to, then B can sue C.  If C still refuses to perform, then B can compel A to fulfill the duties under secondary liability.

Lastly, a related concept is novation , which is when a new obligor substitutes and releases an old obligor.  If novation occurs, then the original obligor’s duties are wiped out. However, novation requires an original obligee’s consent .  

Property Law

Under property law, assignment typically arises in landlord-tenant situations.  For example, A might be renting from landlord B but wants to another party (C) to take over the property.   In this scenario, A might be able to choose between assigning and subleasing the property to C.  If assigning , A would be giving C the entire balance of the term, with no reversion to anyone whereas if subleasing , A would be giving C for a limited period of the remaining term.  Significantly, under assignment C would have privity of estate with the landlord while under a sublease, C would not. 

[Last updated in May of 2020 by the Wex Definitions Team ]

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What Is Wage Assignment?

Definition and example of wage assignment, how wage assignment works, wage assignment vs. wage garnishment.

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A wage assignment is when creditors can take money directly from an employee’s paycheck to repay a debt.

Key Takeaways

• A wage assignment happens when money is taken from your paycheck by a creditor to repay a debt.
• Unlike a wage garnishment, a wage assignment can take place without a court order, and you have the right to cancel it at any time.
• Creditors can only take a portion of your earnings. The laws in your state will dictate how much of your take-home pay your lender can take.

A wage assignment is a voluntary agreement to let a lender take a portion of your paycheck each month to repay a debt. This process allows lenders to take a portion of your wages without taking you to court first.

Borrowers may agree to allow a lender to use wage assignments, for example, when they take out payday loans . The wage assignment can begin without a court order, although the laws about how much they can take from your paycheck vary by state.

For example, in West Virginia, wage assignments are only valid for one year and must be renewed annually. Creditors can only deduct up to 25% of an employee’s take-home pay, and the remaining 75% is exempt, including for an employee’s final paycheck.

If you agree to a wage assignment, that means you voluntarily agree to have money taken out of your paycheck each month to repay a debt.

State laws govern how soon a wage assignment can take place and how much of your paycheck a lender can take. For example, in Illinois, you must be at least 40 days behind on your loan payments before your lender can start a wage assignment. Under Illinois law, your creditor can only take up to 15% of your paycheck. The wage assignment is valid for up to three years after you signed the agreement.

Your creditor typically will send a Notice of Intent to Assign Wages by certified mail to you and your employer. From there, the creditor will send a demand letter to your employer with the total amount that’s in default.

You have the right to stop a wage assignment at any time, and you aren’t required to provide a reason why. If you don’t want the deduction, you can send your employer and creditor a written notice that you want to stop the wage assignment. You will still owe the money, but your lender must use other methods to collect the funds.

Research the laws in your state to see what percentage of your income your lender can take and for how long the agreement is valid.

Wage assignment and wage garnishment are often used interchangeably, but they aren’t the same thing. The main difference between the two is that wage assignments are voluntary while wage garnishments are involuntary. Here are some key differences:

Once you agree to a wage assignment, your lender can automatically take money from your paycheck. No court order is required first, but since the wage assignment is voluntary, you have the right to cancel it at any point.

Wage garnishments are the results of court orders, no matter whether you agree to them or not. If you want to reverse a wage garnishment, you typically have to go through a legal process to reverse the court judgment.

You can also stop many wage garnishments by filing for bankruptcy. And creditors aren’t usually allowed to garnish income from Social Security, disability, child support , or alimony. Ultimately, the laws in your state will dictate how much of your income you’re able to keep under a wage garnishment.

Creditors can’t garnish all of the money in your paycheck. Federal law limits the amount that can be garnished to 25% of the debtor’s disposable income. State laws may further limit how much of your income lenders can seize.

Illinois Legal Aid Online. “ Understanding Wage Assignment .” Accessed Feb. 8, 2022.

West Virginia Division of Labor. “ Wage Assignments / Authorized Payroll Deductions .” Accessed Feb. 8, 2022.

U.S. Department of Labor. “ Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA) .” Accessed Feb. 8, 2022.

Sacramento County Public Law Library. “ Exemptions from Enforcement of Judgments in California .” Accessed Feb. 8, 2022.

District Court of Maryland. “ Wage Garnishment .” Accessed Feb. 8, 2022.

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What Is Debt Financing?

How debt financing works.

• Special Considerations

Debt Financing vs. Interest Rates

Debt financing vs. equity financing, advantages and disadvantages of debt financing, debt financing faqs, the bottom line.

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How Debt Financing Works, Examples, Costs, Pros & Cons

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Debt financing occurs when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise that the principal and interest on the debt will be repaid. The other way to raise capital in debt markets is to issue shares of stock in a public offering; this is called equity financing .

Key Takeaways

• Debt financing occurs when a company raises money by selling debt instruments to investors. 
• Debt financing is the opposite of equity financing, which entails issuing stock to raise money. 
• Debt financing occurs when a firm sells fixed income products, such as bonds, bills, or notes.
• Unlike equity financing where the lenders receive stock, debt financing must be paid back.  
• Small and new companies, especially, rely on debt financing to buy resources that will facilitate growth.

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When a company needs money, there are three ways to obtain financing: sell equity, take on debt , or use some hybrid of the two. Equity represents an ownership stake in the company. It gives the shareholder a claim on future earnings, but it does not need to be paid back. If the company goes bankrupt , equity holders are the last in line to receive money.

A company can choose debt financing, which entails selling fixed income products, such as bonds, bills, or notes , to investors to obtain the capital needed to grow and expand its operations. When a company issues a bond, the investors that purchase the bond are lenders who are either retail or institutional investors that provide the company with debt financing. The amount of the investment loan—also known as the principal —must be paid back at some agreed date in the future. If the company goes bankrupt, lenders have a higher claim on any liquidated assets than shareholders. 

Special Considerations 

Cost of debt.

A firm's capital structure is made up of equity and debt. The cost of equity is the dividend payments to shareholders, and the cost of debt is the interest payment to bondholders. When a company issues debt, not only does it promise to repay the principal amount, it also promises to compensate its bondholders by making interest payments, known as coupon payments , to them annually. The interest rate paid on these debt instruments represents the cost of borrowing to the issuer.

The sum of the cost of equity financing and debt financing is a company's cost of capital . The cost of capital represents the minimum return that a company must earn on its capital to satisfy its shareholders, creditors, and other providers of capital. A company's investment decisions relating to new projects and operations should always generate returns greater than the cost of capital. If a company's returns on its capital expenditures are below its cost of capital, the firm is not generating positive earnings for its investors. In this case, the company may need to re-evaluate and re-balance its capital structure.

The formula for the cost of debt financing is:

KD = Interest Expense x (1 - Tax Rate)

where KD = cost of debt

Since the interest on the debt is tax-deductible in most cases, the interest expense is calculated on an after-tax basis to make it more comparable to the cost of equity as earnings on stocks are taxed.

Measuring Debt Financing

One metric used to measure and compare how much of a company's capital is being financed with debt financing is the debt-to-equity ratio (D/E). For example, if total debt is $2 billion, and total stockholders' equity is $10 billion, the D/E ratio is $2 billion / $10 billion = 1/5, or 20%. This means for every $1 of debt financing, there is $5 of equity. In general, a low D/E ratio is preferable to a high one, although certain industries have a higher tolerance for debt than others. Both debt and equity can be found on the balance sheet statement.

Creditors tend to look favorably on a low D/E ratio, which can increase the likelihood that a company can obtain funding in the future.

Some investors in debt are only interested in principal protection, while others want a return in the form of interest. The rate of interest is determined by market rates and the creditworthiness of the borrower. Higher rates of interest imply a greater chance of default and, therefore, carry a higher level of risk. Higher interest rates help to compensate the borrower for the increased risk. In addition to paying interest, debt financing often requires the borrower to adhere to certain rules regarding financial performance. These rules are referred to as covenants .

Debt financing can be difficult to obtain. However, for many companies, it provides funding at lower rates than equity financing, particularly in periods of historically low-interest rates. Another advantage to debt financing is that the interest on the debt is tax-deductible . Still, adding too much debt can increase the cost of capital, which reduces the present value of the company.

The main difference between debt and equity financing is that equity financing provides extra working capital with no repayment obligation. Debt financing must be repaid, but the company does not have to give up a portion of ownership in order to receive funds.

Most companies use a combination of debt and  equity financing . Companies choose debt or equity financing, or both, depending on which type of funding is most easily accessible, the state of their cash flow , and the importance of maintaining ownership control. The D/E ratio shows how much financing is obtained through debt vs. equity. Creditors tend to look favorably on a relatively low D/E ratio, which benefits the company if it needs to access additional debt financing in the future.

One advantage of debt financing is that it allows a business to  leverage  a small amount of money into a much larger sum, enabling more rapid growth than might otherwise be possible. Another advantage is that the payments on the debt are generally tax-deductible. Additionally, the company does not have to give up any ownership control, as is the case with equity financing. Because equity financing is a greater risk to the investor than debt financing is to the lender, debt financing is often less costly than equity financing.

The main disadvantage of debt financing is that interest must be paid to lenders, which means that the amount paid will exceed the amount borrowed. Payments on debt must be made regardless of business revenue, and this can be particularly risky for smaller or newer businesses that have yet to establish a secure cash flow.

Debt financing allows a business to leverage a small amount of capital to create growth

Debt payments are generally tax-deductible

A company retains all ownership control

Debt financing is often less costly than equity financing

Interest must be paid to lenders

Payments on debt must be made regardless of business revenue

Debt financing can be risky for businesses with inconsistent cash flow

What Are Examples of Debt Financing?

Debt financing includes bank loans; loans from family and friends; government-backed loans, such as SBA loans; lines of credit; credit cards; mortgages; and equipment loans.

What Are the Types of Debt Financing?

Debt financing can be in the form of installment loans , revolving loans , and cash flow loans .

Installment loans have set repayment terms and monthly payments. The loan amount is received as a lump sum payment upfront. These loans can be secured or unsecured .

Revolving loans provide access to an ongoing line of credit that a borrower can use, repay, and repeat. Credit cards are an example of revolving loans.

Cash flow loans provide a lump-sum payment from the lender. Payments on the loan are made as the borrower earns the revenue used to secure the loan. Merchant cash advances and invoice financing are examples of cash flow loans.

Is Debt Financing a Loan?

Yes, loans are the most common forms of debt financing.

Is Debt Financing Good or Bad?

Debt financing can be both good and bad. If a company can use debt to stimulate growth , it is a good option. However, the company must be sure that it can meet its obligations regarding payments to creditors. A company should use the cost of capital to decide what type of financing it should choose.

Most companies will need some form of debt financing. Additional funds allow companies to invest in the resources they need in order to grow. Small and new businesses, especially, need access to capital to buy equipment, machinery, supplies, inventory, and real estate. The main concern with debt financing is that the borrower must be sure that they have sufficient cash flow to pay the principal and interest obligations tied to the loan.

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Assignment of Debt UK – Everything You Need To Know

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In the complex financial landscape of the United Kingdom, understanding the nuances of ‘Assignment of Debt’ is essential for both creditors and debtors. This concept, often encountered but not always fully understood, involves the transfer of a debt obligation from the original creditor (the assignor) to a third party (the assignee).

This article aims to demystify the intricacies of debt assignment, explaining its types, legal implications, and impact on individuals’ financial standings.

Whether it’s about navigating through the differences between legal and equitable assignments, understanding the role of deeds, or grasping how such transactions affect your credit report and legal rights, this guide provides a comprehensive overview, ensuring that you are well informed about this critical aspect of financial management in the UK.

Table of Contents

What Does ‘Assignment of Debt’ Mean?

Assignment of Debt: a term that might sound complex, but it’s really quite straightforward. Let’s dive into what this means for you.

Simply put, your original creditor, known as the assignor, transfers your debt to another party, the assignee. This could change who you deal with regarding your debt. The assignee can now take legal steps to recover the debt from you. Thus, this might include court action.

How Debt Assignments Work

When a creditor offers credit to a borrower, they do so believing that the money they lend, along with the interest, is repaid on time. So, the lender waits to recover the money owed according to the timeframe stated in the contract.

In some situations, the lender might decide that they want to sell the debt to a third party because they no longer want to assume responsibility for servicing the loan. In this case, the debtor should be sent a Notice of Assignment (NOA). This should state that someone else is now responsible for collecting the outstanding debt. This is called a debt assignment.

It’s mandatory to inform the debtor when the debt is assigned to a third party so that they are aware of who they should pay the debt to. The payments won’t be accepted if the debtor ends up sending payments to the old creditor after they’re assigned. This might result in the debtor unintentionally defaulting.

Also, once the debtor receives this notice, it’s best that they verify that the new creditor has recorded the correct monthly payment and total balance. In some situations, the new assignee might even decide to make changes to the original terms of the loan. In this case, the creditor should notify the debtor without delay and give them sufficient time to respond.

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Legal Assignment vs Equitable Assignment

A legal assignment is when another company takes over the following from a creditor:

• Benefit of a debt
• The right to enforce the debt

This indicates that they have the right to seek court action over the loan.

However, when it comes to equitable assignment, it only transfers the benefit of the loan to a third party. In this case, there is no right to seek court action over the loan. Thus, in a situation where the assignee wants to take the debtor to court, they only have the right to work with the original creditor after the original creditor decides to take the debtor to court.

So, simply said, they don’t have the power to initiate court action themselves. Also, note that in order for the assignment to be effective, the debtor must be notified regarding the assignment. The debtor is obligated to make the payment to the assignee only after they get the notice.

Assignment vs Novation

When it comes to the assignment, the party that assigns will continue performing the obligation associated with the loan. However, the assignee is now entitled to the loan benefits.

For example, assume that you assign a debt, that a debtor owes to you, to another organisation. In this situation, you have some rights and obligations over the loan. But particularly the right to pursue legal action in court.

Meanwhile, when it comes to novation, it consists of a full transfer of both rights and obligations. For example, as per the previous scenario, the creditor would give the assignee company full power when it comes to both the obligations and the rights associated with the loan.

Assignment vs Selling

As mentioned before, the assignment of debt means that the right of an individual to collect a debt has been transferred legally from the assignor (original creditor) to the assignee (third party). Then, the debtors are informed regarding the assignment. They should then make the payments to the assignee.

However, keep in mind that the conditions and terms of the contract do not change.

When it comes to selling debt, this is where a lender sells their loan to another, usually for a lesser amount than what it’s worth. The buyer (most of the time a debt collection company) tries to collect the whole amount from the debtor.

Does an Assignment Need to be a Deed?

When delving into the law of assignment, a crucial question often pops up: is a formal deed essential to make the transfer of debt legitimate? The answer isn’t as straightforward as you might think. Let’s unpack this:

Often, a less formal agreement can do the job. However, in some cases, particularly when the original loan agreement was a deed, a deed for the assignment becomes necessary.

Understanding the importance of deeds in this context is key. If your original loan agreement was signed as a deed, the assignment might also need to be a deed. This adds a layer of formality and legal binding. A deed indicates a more serious commitment, making everyone involved fully aware of the transfer’s details.

Knowing your rights in these situations is non-negotiable:

• Whether it’s through a deed or an agreement, you’re entitled to be informed about the assignment. This ensures the process is fair and transparent.
• This notification is more than just a formality; it validates the transfer and helps you understand the change in your debt obligations.
• The use of a deed or agreement provides legal clarity. This helps in understanding your position in the new arrangement.
• In such situations, seeking legal or financial advice can be a wise move.

In the complex world of debt assignments, whether a deed is necessary depends on various factors. Understanding the role of deeds and your rights is essential in navigating these financial waters.

Benefits of Assignment of Debt

There are multiple reasons why a creditor might decide to assign the debt to another person. One of the main reasons for this is to improve liquidity or to reduce the risk. In some cases, the lender might also be wanting some capital urgently. Also, they might have accumulated a large amount of high-risk loans and be wary that most of them could default.

In such situations, lenders may be willing to assign them to another person swiftly, even for a very small amount. They are open to doing this as long as it will help to improve their financial outlook and appease worried investors.

In other cases, the creditor might decide the debt is too old to spend resources trying to collect it. They might even assume that since it’s old, it’s not worth assigning it to a third party to pick up the collection activity. In such an instance, a company will decide not to assign their debt to a third party.

Criticisms of Assignment of Debt

Even though the assignment of debt may seem like a good option for lenders, it also has a fair bit of criticism.

Over the past, debt buyers have been known to use various unethical practices in order to get paid. This includes constantly harassing debtors and issuing threats. In some situations, they have also been accused of chasing debts that have already been paid.

Additional Advice and Guidance

If you’re struggling with debt, note that there are many debt solutions available in the UK that you can consider taking up. Some of these include:

• Individual Voluntary Arrangement (IVA)
• Debt Management Plan (DMP)
• Debt Relief Orders (DRO)

However, note that while the right debt solutions will help to write off debt, choosing the wrong one might worsen your situation. So, we recommend you reach out to a debt charity for advice before you make the decision. Some debt charities you can reach out to include:

• National Debtline
• Citizens Advice

Alternatively, feel free to fill out our online form , and our MoneyAdvisor team will guide you.

• It refers to the transfer of a debtor’s obligation from the original creditor (assignor) to a third party (assignee).
• Legal Assignment: Transfers both the right to collect the debt and the right to enforce it legally, including court action.
• Equitable Assignment: Only the benefits of the loan are transferred, not the legal right to enforce it.
• Assignment maintains the original terms of the loan with a new creditor, whereas novation transfers all rights and obligations to a new party.
• In assignment, the right to collect the debt is transferred, while selling involves a financial transaction where the lender sells the loan, often at a lower price.
• Generally, a deed is not required for debt assignment, but it may be necessary when the original loan agreement is signed as a deed.
• Assignment of debt will be reflected in the credit report, including any updates on the loan terms and the new lender’s name.
• A formal notice is required, especially in legal assignments, to inform the borrower about the transfer of their debt.
• Once a notice is issued, the new creditor assumes the rights and obligations of the debt and may engage in various debt collection methods.
• Common reasons include avoiding the hassle of debt collection, lacking resources for legal action, or efficiency in debt collection through a third party like a collection agency.
• Under UK law, most debts have a limitation period of six years (twelve for mortgage loans), after which they might be written off if there’s no contact from the creditor.

Under UK law, the limitation period for most debts is six years. For mortgage loans, it extends to twelve years. If your creditor hasn’t contacted you within these time frames, you may have legal grounds to have the debt written off. This includes personal loans, credit cards, payday loans, and others.

The new lender takes on both the obligations and rights of the mortgage loan. Though rare, borrowers can also assign their mortgage to someone else. These assignments are recorded with the county recorder’s office for legal purposes.

Your credit report will reflect the change in lender and any new loan terms. You’ll see the new lender’s name instead of the old one. If you default under the new lender, they will report this to Credit Reference Agencies.

Under the Property Act 1925, it’s a formal notification to the borrower that their debt has been acquired by a new company. This notice is required in cases of legal assignment.

The new creditor assumes the benefits and obligations of the debt. They may hire a collection agency or use other methods to recover the debt, often avoiding court action to minimise costs.

Assigning debt is often done to avoid the trouble of collecting it. Some may lack the resources to take legal action against debtors. If a third party, like a debt collection agency, can handle repayment collection more efficiently, it’s a preferred choice.

Could you write off some debt?

We offer free advice. May not be suitable in all circumstances. Fees apply. Your credit rating may be affected.

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Debt solutions such as IVA, Debt Management, DRO and Bankruptcy will have a negative impact on your credit rating. As part of our free service, we’ll look at your financial situation, explain the available options, and then recommend a debt solution which could be suitable for you. Depending on the solution, fees may be involved, which would be fully explained, and details provided in writing.

Should we determine an IVA is the most appropriate solution for you, we will pass your case to The Insolvency Group. Tracey Howarth (IP No: 16410), Mike Reeves (IP No: 7882) and Donald Harper (IP No: 9296) are licensed as insolvency practitioners in the UK with the Insolvency Practitioners Association.

*As an example, debt write-off of 85% has been achieved by 14.32% of our customers on approved IVAs in the last 12 months. (Dated 07/11/2023)

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• Practical Law

Assignment of debt

Practical law uk legal update 1-100-2291  (approx. 2 pages).

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