Acknowledgment of Debt Deed
This Acknowledgment of Debt Deed, also known as an IoU, can be used as a one-party deed to acknowledge the existence and terms of a debt.
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Last updated December 16, 2024
Under 10 minutes
Suitable for Australia
Written by
Edwin Montoya Zorrilla
Reviewed by
Damin Murdock
Document Overview
When recording loan transactions between parties it is important to consider the type of agreement or deed that is most suitable based on the parties involved and the nature of the transaction.
While in certain circumstances complex loan agreements involving the provision of securities might be appropriate, where a straight forward loan is to be recorded, it may well be advisable to record the transaction as an acknowledgment of debt. Creditors can still require debtors to provide a security such as a third party guarantee to underpin the debtor’s performance under the acknowledgement of debt.
An acknowledgment of debt essentially represents an acknowledgment by a debtor of his or her indebtedness to the creditor. It may arise out of any cause whether as a result of a loan transaction, tort, breach of contract or otherwise. The acknowledgment includes:
- confirmation of the debt amount; and
- an agreement to pay off the debt whether in one lump sum or instalments.
If the debt is disputed at a later stage, the acknowledgment of debt can be produced in court as evidence of the debt, including the payment terms.
This precedent sets out common clauses to be found in an acknowledgment of debt. Note that this is not an agreement between creditor and debtor but rather an acknowledgment by the debtor of the debt and payment terms. It is only the debtor who signs the acknowledgment.
You should seek legal advice to ensure that this document meets your circumstances, whether you are a creditor or a debtor.
The Legal Risk Score of a Acknowledgment of Debt Deed Template
Our legal team have marked this document as medium risk considering:
- The document requires the debtor to pay the full debt amount, interest, and costs immediately if they miss or only partially pay a monthly installment, which could pose a significant financial strain if unforeseen circumstances affect the debtor's ability to pay on time.
- The debtor agrees to cover all legal costs incurred by the creditor in the event of non-compliance with the terms, potentially adding substantial additional financial liability on top of the existing debt.
Compared to other legal documents that might offer more balanced protections for both parties involved, this document is skewed in favor of the creditor, making it crucial for debtors to fully understand the implications and ensure they can meet the terms laid out before agreeing.
Acknowledgment of Debt Deed Checklist
Complete your free Acknowledgment of Debt Deed with our checklist
Ensure Proper Execution of the Deed
Make sure that the deed is signed and dated by the debtor in the presence of a witness to ensure its legal validity.
Set Up Payment Notifications
Establish a reliable system to remind the debtor of upcoming payment dates to avoid missed or partial payments that could trigger severe consequences.
Document All Transactions
Keep detailed records of all payments made, including dates and amounts, to ensure transparency and accuracy in the financial dealings between the debtor and creditor.
Review Legal Obligations Regularly
Regularly review the terms of the deed, especially the legal obligations and rights, to ensure ongoing compliance and understanding of both parties’ responsibilities.
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