Recognition of debt with terms of payment

The legal standing of a promissory note or an acknowledgement of debt can’t be discounted. It’s a very encouraging step towards the resolution (and hopefully, the recouping) of at least some, if not all, of the money owed by the debtor.

When is a Recognition of Debt Used?

If a loan is set up, it will come with an extensive loan agreement and specific repayment terms. If the debtor runs into a difficult change in their financial life, that has a direct impact on the repayment terms. Suddenly, payments are missed. The debtor does intend to pay it back. This is what a recognition of debt letter officiates. This letter is, literally, the debtor’s way of saying that they recognize the debt amount and intend to honor repayment of at least some portion. Recognition of debt letters are a great method of arbitration between the two parties, rather than completely bankrupting or suing the other party.

Specific Clauses for a Debt Settlement Agreement

Obviously, a recognition of debt document or letter needs to state, clearly, the amount that is owed and to whom. A recognition of debt letter must also stipulate the “settlement amount”, which is to say, how much the debtor has agreed to pay the creditor, in order that the terms of the original contract can be concluded and realized as being complete. It’s also best to include a time period where payment can be expected within, a “no modification” clause, any further assurances relating to repayment, and the “venue” or state in which the agreement is being executed is required.

Even if it’s a loan between family and friends, a promissory note signed right at the outset is useful. This works for both the creditor and debtor. This is because it will allow the terms written out are terms that can be re-negotiated, which is especially useful if there’s a change in the debtor’s financial situation and they need relief.