The Debt Acknowledgment Form: What is it?
A Debt Acknowledgement Form is a legal document used by a creditor to collect a debt from a debtor. It serves as a written acknowledgement of a debt owed, essentially functioning as a written promise to pay. In many cases, a Debt Acknowledgement Form is used to extend the payment schedule in order to facilitate repayment. Even if not accompanied by a new payment schedule, a Debt Acknowledgement Form may still be useful as a form of payment plan, particularly in collections and litigation settings.
As two Ohio courts have pointed out , it is important for both parties to the debt acknowledgment to sign the letter for it to serve as a legally binding contract. If the agreement is not signed by both parties, then it may not be enforceable in court. If the debt acknowledgment is for more than $25 or does not state that it is a repayment of a liquidated debt, then it may be void under the Statute of Frauds.
A Debt Acknowledgement Form is commonly used by lenders to convince a debtor to make payments on a debt that is already overdue. Simply put, the creditor offers the debtor a way out in the form of a repayment agreement or a new payment schedule.
The Value of a Debt Acknowledgment Form
With regard to an agreement for the loan of money, in the absence of an acknowledgment, there exists a presumption that the person receiving the money previously had possession of the money. Thus, if you are the lender and do not have an acknowledgment from the borrower, the lender will be presumed to have given the money to the borrower, and the borrower will be presumed to have received the money. As a result, it is very important that prior to giving the money to the borrower, you have him or her sign the written acknowledgment. Otherwise, he or she may be able to avoid repayment of the loan.
In the alternate, if you are the borrower and you do have a written acknowledgment signed by the lender such as this form, then you can look to it as your promise to repay the loan. So long as the signature is authentic, you will have a complete defense in court if the bank or lender tries to hold you to the exchange as an enforceable contract.
For more information on checks and debt acknowledgments, please visit the Check Resource Center at US Legal Forms.
Essential Features of a Debt Acknowledgment Form
When a debtor acknowledges a debt owed, a valid acknowledgment requires certain elements. A agreement cannot be enforced if it is vague or uncertain as to the nature of the indebtedness. The elements necessary for a valid acknowledgment are:
- Statement that there exists some kind of existing agreement between the parties;
- Statement that the obligations under the existing agreement have not been discharged or satisfied;
- Statement that the debtor is willing to perform the obligations under the agreement; and
- Signature by the debtor certifying to all of the above statements.
The agreement may be either written or oral.
A debt acknowledgement must be related to an existing obligation. If there is no existing obligation, a debt acknowledgement is not required. An indebtedness exists if the agreement and the debt are capable of being determinable. For example, the amount owed is known as well as the terms under which the debt shall be paid back.
How to Create a Debt Acknowledgment Form
A debt acknowledgement form should include the following information:
Introduction
The first line of this form is simply to introduce the reader to the purpose of the form. For example:
This Debt Acknowledgement Form ("the Agreement") contains an admission, payment terms, and settlement of a debt.
Parties
The next step is to identify all parties involved in the debt; the agreement will usually be between an individual (or multiple individuals) and a business entity or a business entity and another business entity. Some examples of suitable options for identifying the parties are as follows:
Strike through any unnecessary identification lines.
Amount Due
Once parties are identified, the amount that is due should be detailed. The following text is suggested:
Wherefore, in consideration of the terms and conditions contained herein, the Debtor hereby admits, acknowledges, agrees, and affirms that he/she/they owes and shall pay to the Creditor the sum of $_________.
Payment Method
Next, payment terms must be described. For a debt acknowledgment for an individual or individuals, use the example below:
The Debtor shall pay the above-specified amount in the following manner:
Where the debtor is a business, the following text is recommended instead:
Debtor shall pay the above-referenced amount within ______ days of this Agreement being executed by the Parties.
Signature
This section is for the signatures of each party. In many states, there must be an outside party (such as a lawyer) available to witness the signatures of each debtor and creditor.
Legal and Regulatory Issues
When creating a debt acknowledgement form, it’s important to consider the legality of the agreement. Every state or country may have different rules and guidelines for a debt acknowledgement form. Common pitfalls to avoid include inadequate information, vague details, or non-compliance with state or country-specific laws.
In the United States, for example, the statute of frauds requires that all contracts involving a promise to pay a debt of another be in writing and signed by the persons to be charged. If a debt acknowledgment form fails to meet these requirements, it may not be enforceable in court, leaving the creditor with no legal remedy to recover the amount owed.
Moreover, a debt acknowledgement form should not include any terms that violate state or federal lending laws. For instance , including an illegal rate of interest in the terms can render the entire form invalid. It’s essential to ensure that all aspects of the debt acknowledgement form comply with federal and state lending laws.
In addition, if specific language and formatting requirements are required by your local legislation, your debt acknowledgement form may be considered non-compliant and therefore void. As such, it is important to research local laws and regulations before drafting a debt acknowledgement form.
As a best practice, it is usually beneficial to consult with a qualified attorney to ensure that the debt acknowledgement form is legally sound and includes all necessary legal language and protections for both parties.
Samples and Examples
Although few places offer forms and templates for debt acknowledgement, there are some. Using these examples can help you create a form that will easily convey your position to the debtor.
Richard U. Ayers & Assoc. provide a business debt acknowledgement, a personal debt acknowledgement, and a business debt payment arrangement. Any of these could be used to generate your own debt acknowledgement.
Yahoo Finance offers a sample debt acknowledgement letter with an overview on how to adjust it for your situation. This acknowledgement form is for a debt that is not secured with collateral.
Corporate Resolutions Online provides an explanation of debt acknowledgement along with a business debt acknowledgement template.
With an understanding of the importance of debt acknowledgement in a business, you may want to use a template that has been provided by a finance site for generic debts or personal obligations. Keep in mind, though, that the template may not be as specific to your needs. For the strongest debt acknowledgement, consider drafting the document yourself.
Questions and Answers
How many debt acknowledgement forms do I need to fill out?
It depends on the number of accounts for which you’re sending a debt acknowledgement form. Make sure you keep a complete paper trail for each account, so we recommend one debt acknowledgment for each account with a separate return receipt for each.
What does the acknowledgement form say?
In essence, it states that you recognize your obligation to repay the debt and you will shortly be making some type of formal repayment plan such as a payment in full or a settlement.
Should I send a debt acknowledgement form to everyone I owe money to?
If you are unable to agree on a repayment plan or settlement, don’t acknowledge your debt to any creditor . Tell your creditors that you’re seeking the legal help of a bankruptcy attorney regarding all debts and that you cannot communicate with them directly.
Do I need to provide my income to the creditor in my debt acknowledgement form?
No, you should never provide any financial information along with your debt acknowledgement form.
What happens after I send my debt acknowledgement form to my creditor?
If you have sent a form with an offer of repayment by installment, the creditor may respond with an acceptance of your offer or a counter-offer. If the response is acceptable to you, you can begin sending payments according to the plan you have agreed upon. If the creditor has sent a counter-offer that is acceptable to you, you can sign the new return receipt and begin sending payments according to the repayment strategy.
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