Debt Assumption: Definition & Business Applications

Debt assumption is a type of debt transfer.

Debt assumption is a type of debt refinancing under which a specific financial obligation is officially transferred from one party to another. The transaction involves paying off -- and thus ending -- the original payer's debt responsibility by shifting the payment commitment to a new debtor under a fresh contract with the initial issuing creditor.

Business Debt

Assumption of debt often is a part of business transactions, such as sales, acquisitions and mergers. In those dealings, the debt liability of the selling company usually influences the purchase price paid by the buyer or merger instigator. In exchange for assuming the selling company's debt, the buying organization usually will deduct the debt value from the agreed sale price before issuing payment.

Personal Debt

Mortgage transfer is one of the most common types of debt assumption in the private market. It follows the same principle as business debt assumption. Typically, the buyer agrees to keep the seller's existing mortgage on the property and assume the remaining debt liability owed to the lender in exchange for deducting that amount from the purchase price paid to the seller. Most mortgages are not assumable, however.