What Is a Obligation Assignment?
The term debt assignment refers to a transfer of debt, and all the associated rights and obligations, from a creditor to a third defender. The assignment is a legal transfer to the other party, who then becomes the owner of the debt. In most cases, a debt designation is issued to a debt collector who then assumes responsibility to collect the debt.
Key Takeaways
- Debt assignment is a transfer of answerable for, and all the associated rights and obligations, from a creditor to a third party—often a debt collector.
- The company assigning the owing 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 he or she knows who to enact payments to and where to send them.
- Third-party debt collectors are subject to the Fair Debt Collection Practices Act, a federal law supervised by the Federal Trade Commission.
How Debt Assignments Work
When a creditor lends an individual or business money, it generally speaking 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 prompt fashion. The lender—or the extender of credit—will sit back and wait to recoup all the money owed according to the conditions and timeframe demanded 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 on to a third accomplice instead. Should that happen, a Notice of Assignment (NOA) is sent out to the debtor, the recipient of the loan, informing him of her that celebrity else is now responsible for collecting any money still outstanding. This is referred to as a debt assignment.
The debtor must be warned when a debt is assigned so that he or she will know who to make payments to and where to send them. If the debtor sends payments to the old creditor after the due has been assigned, it is likely that the payments will not be accepted, which could cause the debtor to unintentionally lapse.
When a debtor receives such a notice, it is also generally a good idea for him or her to verify that the new creditor has recorded the normal total balance and monthly payment for the debt owed. In some cases, the new owner of the debt might even need to propose changes to the original terms of the loan. Should this path be pursued, the creditor is obligated to immediately declare the debtor and give him or her adequate time to respond.
The debtor still maintains the same legal rights and protections held with the starting creditor.
Special Considerations
Third-party debt collectors are subject to the Fair Debt Collection Practices Act (FDCPA). The FDCPA, a federal law keep an eye oned by the Federal Trade Commission (FTC), restricts the means and methods by which third-party debt collectors can contact debtors, the pro tempore 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 gifted to file suit may against the debt collection company and the individual debt collector for damages and attorney fees within one year. The styles 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 consign its debt to someone else. This option is often exercised to improve
Criticism of Debt Assignment
The process of accrediting debt has drawn a fair bit of criticism, especially over the past few decades. Debt buyers have been accused of attractive in all kinds of unethical practices to get paid, including issuing threats and regularly harassing debtors. In some cases, they enjoy also been charged with chasing up debts that have already been settled.