Assignment of Debt

How Debt Assignment Works

An assignment of debt transfers the creditor's contractual rights from the assignor (seller) to the assignee (buyer). The buyer steps into the legal position of the original creditor and acquires the right to collect the outstanding balance, including any accrued interest and fees permitted under the original agreement.

The assignment is typically documented in a bill of sale or assignment agreement that forms part of the purchase and sale agreement (PSA). For the transfer to be legally effective, the assignment must clearly identify the accounts being transferred, reference the original credit agreements, and comply with applicable provincial requirements.

Chain of Title and Documentation

Each assignment creates a link in the chain of title for a receivable. If an account has been sold multiple times, the current holder must be able to produce documentation showing each transfer from the original creditor to the present owner. A complete chain of title is essential for establishing legal standing in any collection or court proceeding.

Buyers conducting due diligence pay close attention to the completeness of assignment documentation. Missing or defective assignments can impair the buyer's ability to enforce collection, particularly in Ontario's Small Claims Court and Superior Court, where judges may require proof of ownership before granting judgment.

Notice Requirements in Ontario

Under Ontario law, an assignment of a debt can be either legal or equitable. A legal assignment under the Conveyancing and Law of Property Act requires that the assignment be absolute, in writing, and that express notice be given to the debtor. While equitable assignments (without notice to the debtor) are also recognized, providing written notice strengthens the buyer's legal position and prevents the debtor from claiming payments made to the original creditor after the transfer date.