ASSUMPTION OF INDEBTEDNESS Meaning and
Definition
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Assumption of indebtedness refers to the act of taking on or assuming the existing debts or liabilities of another individual, organization, or entity. It typically occurs as part of a legally binding agreement between the party assuming the debt (the assumptor) and the party transferring the debt (the assignor).
When an assumption of indebtedness takes place, the assumptor agrees to take responsibility for the repayment of the debt, effectively stepping into the shoes of the assignor. This means that the assumptor becomes legally obligated to make payments towards the outstanding debt, including any interest and fees that may apply.
Assumptions of indebtedness commonly occur in various financial arrangements, such as when a person assumes the mortgage of a property from another party or when a company acquires another company and assumes its outstanding loans or liabilities. In these cases, the assumptor agrees to take over the existing debt with the understanding that they will be solely responsible for its repayment going forward.
It is important to note that assumptions of indebtedness should be documented and may require approval from relevant parties, such as lenders or financial institutions. This helps ensure that all parties involved are aware of the transfer of responsibility and protects the assumptor from any potential disputes or claims regarding the debt in the future.
