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Debt Assignment: How They Work, Considerations and Benefits

Daniel Liberto is a journalist with over 10 years of experience working with publications such as the Financial Times, The Independent, and Investors Chronicle.

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Investopedia / Ryan Oakley

What Is Debt Assignment?

The term debt assignment refers to a transfer of debt, and all the associated rights and obligations, from a creditor to a third party. The assignment is a legal transfer to the other party, who then becomes the owner of the debt . In most cases, a debt assignment is issued to a debt collector who then assumes responsibility to collect the debt.

Key Takeaways

• Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party (often a debt collector).
• The company assigning the debt may do so to improve its liquidity and/or to reduce its risk exposure.
• The debtor must be notified when a debt is assigned so they know who to make payments to and where to send them.
• Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA), a federal law overseen by the Federal Trade Commission (FTC).

How Debt Assignments Work

When a creditor lends an individual or business money, it does so with the confidence that the capital it lends out—as well as the interest payments charged for the privilege—is repaid in a timely fashion. The lender , or the extender of credit , will wait to recoup all the money owed according to the conditions and timeframe laid out in the contract.

In certain circumstances, the lender may decide it no longer wants to be responsible for servicing the loan and opt to sell the debt to a third party instead. Should that happen, a Notice of Assignment (NOA) is sent out to the debtor , the recipient of the loan, informing them that somebody else is now responsible for collecting any outstanding amount. This is referred to as a debt assignment.

The debtor must be notified when a debt is assigned to a third party so that they know who to make payments to and where to send them. If the debtor sends payments to the old creditor after the debt has been assigned, it is likely that the payments will not be accepted. This could cause the debtor to unintentionally default.

When a debtor receives such a notice, it's also generally a good idea for them to verify that the new creditor has recorded the correct total balance and monthly payment for the debt owed. In some cases, the new owner of the debt might even want to propose changes to the original terms of the loan. Should this path be pursued, the creditor is obligated to immediately notify the debtor and give them adequate time to respond.

The debtor still maintains the same legal rights and protections held with the original creditor after a debt assignment.

Special Considerations

Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA, a federal law overseen by the Federal Trade Commission (FTC), restricts the means and methods by which third-party debt collectors can contact debtors, the time of day they can make contact, and the number of times they are allowed to call debtors.

If the FDCPA is violated, a debtor may be able to file suit against the debt collection company and the individual debt collector for damages and attorney fees within one year. The terms of the FDCPA are available for review on the FTC's website .

Benefits of Debt Assignment

There are several reasons why a creditor may decide to assign its debt to someone else. This option is often exercised to improve liquidity  and/or to reduce risk exposure. A lender may be urgently in need of a quick injection of capital. Alternatively, it might have accumulated lots of high-risk loans and be wary that many of them could default . In cases like these, creditors may be willing to get rid of them swiftly for pennies on the dollar if it means improving their financial outlook and appeasing worried investors. At other times, the creditor may decide the debt is too old to waste its resources on collections, or selling or assigning it to a third party to pick up the collection activity. In these instances, a company would not assign their debt to a third party.

Criticism of Debt Assignment

The process of assigning debt has drawn a fair bit of criticism, especially over the past few decades. Debt buyers have been accused of engaging in all kinds of unethical practices to get paid, including issuing threats and regularly harassing debtors. In some cases, they have also been charged with chasing up debts that have already been settled.

Federal Trade Commission. " Fair Debt Collection Practices Act ." Accessed June 29, 2021.

Federal Trade Commission. " Debt Collection FAQs ." Accessed June 29, 2021.

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Assignment Of Debt Agreement: Definition & Sample

Jump to section, what is an assignment of debt agreement.

An assignment of debt agreement is a legal document between a debtor and creditor that outlines the repayment terms. An assignment of debt agreement can be used as an alternative to bankruptcy, but several requirements must be met for it to work.

In addition, if obligations are not met under a debt agreement, it might still be necessary to file for bankruptcy later on. Therefore, consulting with an attorney specializing in debt agreements is always recommended before entering into one of these contracts.

Assignment Of Debt Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10 5 exhibit1024f10qsbmay04.htm EXHIBIT 10.24 , Viewed December 20, 2021, View Source on SEC .

Who Helps With Assignment Of Debt Agreements?

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

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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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.

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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.

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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

>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance

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