Acknowledgement of Debt (IOU)

Overview

An acknowledgement of debt (informally an "IOU", from "I owe you") is a short written statement by a debtor confirming that a specific sum is owed to a named creditor, usually together with agreed repayment terms. It differs from a personal loan agreement in emphasis: a loan agreement is typically drawn up when the money is first advanced and focuses on the terms of the loan itself, whereas an acknowledgement of debt is often used after the fact — to formally record and confirm an existing, sometimes previously informal, debt (for example, money already lent without paperwork, an unpaid invoice, or a settled dispute over an amount owed). Legal effect and limitation: under the Limitation Act 1980, a written acknowledgement of a debt, signed by the debtor (or their agent) and given to the creditor, restarts the limitation period for bringing a claim to recover it (section 29). This is one of the most practically important uses of this document — a creditor concerned that the standard six-year limitation period for a simple contract debt (or the debt's original limitation period) is running out can ask the debtor to sign an acknowledgement, which gives the creditor a fresh six years from the date of acknowledgement in which to sue if the debt remains unpaid. When to use it: to formally record an existing debt where no adequate written record exists, to reset the limitation clock on an old debt (with the debtor's genuine agreement — a document signed under duress or without true acknowledgement of the debt will not have this effect), or simply as a lower-friction alternative to a full loan agreement where money has already changed hands and the parties just need repayment terms recorded. Key clauses: identification of the debtor and creditor, a clear statement of the amount acknowledged as owed and what it relates to (so there is no ambiguity about which debt is being acknowledged), any interest, the repayment terms, and the debtor's signature (which is what gives the document its effect under section 29 of the Limitation Act 1980 — the creditor's signature is not what matters for this purpose). Common pitfalls: a vague description of what the debt actually relates to, which can undermine its evidential value; relying on an oral acknowledgement to reset limitation, when section 29 requires the acknowledgement to be in writing and signed by the debtor to have that specific legal effect; and confusing an acknowledgement of an existing debt with a fresh loan agreement, which are conceptually different documents even though they can look similar on the page.