Acknowledgement of Debt

What are the consequences in defaulting?

“Consequences? What consequences? I’ll pay tomorrow…” This might be the response of some debtors receiving demand for payment in terms of an acknowledgment of debt, not knowing the severe consequences of their phlegmatic response to the request.

Before going into detail on the consequences, it is important to define the concept of what an acknowledgement of debt is and its purpose.

Well, an Acknowledgement of Debt is exactly that: An acknowledgment by one person, hereinafter referred to as the debtor, that he/she is indebted to another person, hereinafter referred to as the Creditor, for a specific amount owed. This acknowledgment normally arises for a previous agreement either for services rendered, goods sold and delivered or monies loaned and advanced, which was not honoured by the person who received the benefit, namely the debtor.

This said acknowledgment is confirmed in a formal document setting out the terms of the re-payment in settling the debt. The debtor agrees to pay the outstanding balance in monthly installments of a specified amount on a specified date, each month. This formal document is known as an Acknowledgement of Debt or in short, an AOD.

The document also contains a breach clause setting out the conditions of non-payment. As soon as the specified amount is not paid on the specified date, breach of the acknowledgement of debt has taken place and the creditor may demand full payment of the outstanding amount immediately.

The breach clause may differ depending on the creditor’s discretion. Normally the debtor is given some rope to remedy the breach within a certain period, failure of which, legal action will commence.

And yes, the acknowledgment gives the creditor in whose favour it is drafted, to take legal action immediately without further warning or delay. The acknowledgment gives the creditor the power to obtain a judgment without having to adhere to the court rules regarding the issue of a summons and service of same upon the debtor. The Acknowledgment of Debt is seen as proof that a debt is owed to the creditor without any extraneous or outside evidence needed to support it.

Once the AOD is singed and you fail to make payment as agreed, you as the debtor, are unequivocally giving permissions/consent to the creditor to take judgment against you and for the sheriff of the court to remove and sell your assets on a public auction to settle the full outstanding debt. This outstanding debt will include any legal costs occasioned by or incurred by the creditor on executing its right envisaged by the acknowledgement.

It is important to take note that even though the acknowledgement is assisting you to settle your debt owed to a creditor in instalments, the actual purpose of Acknowledgment of Debt is to protect the creditor and give immediate relief.

So, the next time you think about treating the AOD reminders/requests with little, to none urgency, think again!