Debt Assumption Agreement Template for United States

A Debt Assumption Agreement transfers a borrower's loan obligations to another party who takes responsibility for paying the debt. In the Philippines, these agreements help businesses restructure their financial obligations, especially during mergers, acquisitions, or when parent companies step in to handle their subsidiaries' debts.

Under Philippine civil law, this three-way contract requires consent from the original debtor, the new debtor, and the creditor. The agreement must clearly outline payment terms, interest rates, and any collateral requirements. It differs from debt assignment because the original debtor is typically released from their obligations once the new party assumes the debt.

Consider using a Debt Assumption Agreement when restructuring business debts during corporate mergers or acquisitions in the Philippines. This agreement proves essential when a stronger company wants to take over a struggling subsidiary's loans, or when selling business assets while transferring associated debt obligations to the buyer.

The agreement works particularly well for family corporations handling intergenerational business transfers, real estate developers consolidating project financing, and conglomerates streamlining their subsidiaries' debt portfolios. It offers a clean, legally binding way to shift debt responsibilities while maintaining good relationships with creditors under Philippine banking regulations.

• Basic Single-Party Assumption: A straightforward agreement where one new debtor takes over an existing loan, common in Philippine corporate acquisitions and family business transfers.
• Multiple-Party Assumption: Used when several entities jointly assume debt responsibility, often seen in consortium arrangements or complex corporate restructuring.
• Conditional Assumption: Links debt transfer to specific milestones or conditions, popular in phased business acquisitions or project financing.
• Partial Assumption: Allows for splitting debt obligations between parties, frequently used in asset sales where only certain liabilities transfer.
• Secured Assumption: Includes additional collateral requirements and security provisions, typical in high-value commercial lending.

• Original Debtors: Companies or individuals looking to transfer their loan obligations, often struggling businesses or entities undergoing restructuring.
• Assuming Parties: Financially stable companies, parent corporations, or investors willing to take on the debt obligations under Philippine banking laws.
• Creditors: Banks, financial institutions, or lenders who must approve the debt transfer and often revise loan terms.
• Corporate Lawyers: Draft and review Debt Assumption Agreements to ensure compliance with Philippine civil and commercial laws.
• Financial Officers: Evaluate terms, calculate financial impact, and manage the transition of payment responsibilities.

• Loan Details: Gather complete information about the original debt, including principal amount, interest rates, payment schedules, and remaining balance.
• Party Information: Collect legal names, addresses, and registration details of original debtor, new debtor, and creditor.
• Financial Assessment: Document the assuming party's credit capacity and financial statements to satisfy Philippine banking requirements.
• Collateral Details: List any existing or new security arrangements, including property descriptions and valuations.
• Payment Terms: Specify new payment arrangements, including any modifications to the original loan structure.
• Approvals: Secure written consent from all parties and necessary corporate authorizations.

• Identification Section: Complete legal names and details of original debtor, new debtor, and creditor, with their authorized representatives.
• Debt Description: Precise details of the loan being transferred, including original agreement date, amount, and current balance.
• Assumption Terms: Clear statement of debt transfer and release of original debtor under Philippine Civil Code provisions.
• Payment Structure: Updated payment terms, interest rates, and schedule following the assumption.
• Representations: Warranties about parties' legal capacity and authority to enter the agreement.
• Default Provisions: Consequences and remedies for non-payment or breach of terms.
• Governing Law: Explicit reference to Philippine laws and choice of jurisdiction.

A Debt Assumption Agreement differs significantly from a Debt Settlement Agreement in both purpose and effect under Philippine law. While both deal with debt obligations, they serve distinct functions in financial transactions.

• Purpose: Debt Assumption transfers existing debt obligations to a new party, keeping the original terms intact. Debt Settlement reduces or restructures the debt amount through negotiation with creditors.
• Parties Involved: Assumption requires three parties (original debtor, new debtor, creditor), while Settlement typically involves just the original debtor and creditor.
• Legal Effect: Assumption maintains the full debt value but changes who pays it. Settlement usually results in partial debt forgiveness or modified payment terms.
• Timing: Assumption often occurs during business restructuring or acquisitions, while Settlement typically happens when a debtor faces financial hardship.