Extrajudicial and judicial debt collection: algorithm of actions for business

Doing business is inevitably associated with the risk of incurring debts from counterparties. For entrepreneurs and companies, this can become a serious problem, affecting the financial condition and stability of the business. It is important to realize that debt collection can be both extrajudicial and judicial, and each of these processes requires a careful approach and the right actions to achieve a successful result. In this article, we will review the algorithm of actions for a business when a debt arises, and explain what steps should be taken depending on the situation.

1 Assessment of the legal nature of the debt

Before proceeding to debt collection, it is important to assess the legal relationship that gave rise to the debt. Often these are labor (material damage caused by an employee) or civil law (contractual) legal relations. This is necessary in order to understand the legal nature of the formation of the debt and to choose the right way to collect it.

First of all, it is necessary to establish whether there is an agreement that defines the terms of payment and terms, as well as ways to secure collection (for example, whether there is a pledge or surety). Based on this assessment, it is possible to understand which way of collection will be more effective and legal - extrajudicial or judicial.

2Assessment of the evidence base

Once you have determined the legal nature of the debt, you need to evaluate the evidence that may support the debt. It is important to answer a few key questions:

- Do you have enough evidence to initiate collection proceedings?

- If the evidence is insufficient, can it be collected?

- If evidence cannot be collected, what are the risks and consequences of filing a claim (e.g., legal fees and court costs)?

If the evidence is insufficient, it is important to take care of collecting it. For this purpose, the following documents should be prepared:

- A contract between you and the debtor that confirms the terms of the transaction.

- Acts of work performed or goods transferred, confirming the fulfillment of your obligations.

- Payment documents: receipts, invoices, acceptance certificates.

- Correspondence with the debtor, if any, confirming negotiations on debt repayment or parts thereof.

- Other documents that may support your claim.

The more complete and accurate the evidence, the better the chance of successful debt collection.

However, if the collection of evidence is impossible or very difficult, you should carefully assess the risks and consider whether it is worthwhile to proceed with the collection process.

3. Extrajudicial recovery

If the legal nature of legal relations implies extrajudicial recovery, it is possible to achieve debt repayment in this way if there is a pledge and an agreement on the extrajudicial procedure of foreclosure on the subject of pledge.

In this case, recovery is carried out by initiating the procedure of organizing an auction in accordance with the requirements of the legislation on pledge and the Civil Code. It is important to understand that extrajudicial foreclosure may be appealed, which may delay the final foreclosure process.

4. Judicial recovery

If the legal nature of the debt indicates the need for judicial recovery, it should be assessed whether a claim procedure (pre-trial dispute resolution) is envisaged.

4.1. Claims procedure

If the claim procedure is provided for, it is necessary to prepare and send a claim to the debtor with a demand to repay the debt. The claim must be officially formalized and sent in the manner prescribed by law (by post with notification or, if provided for in the contract, by electronic means). The claim specifies the amount owed, the date by which payment must be made and information about possible consequences (e.g. legal proceedings). If the dispute is successfully resolved through a claim, it is recommended to conclude an agreement, preferably with security for the performance of obligations (e.g. pledge or surety).

4.2. Legal proceedings

If the claim procedure did not lead to a result or such a procedure is not provided for by law and/or contract, it is necessary to re-analyze the evidence and the prospects of winning the case. It is also important to calculate the amount of state duty.

If the outlook is positive, the next step is to prepare a statement of claim.

The statement of claim must contain:

- Details of the parties (plaintiff and defendant).

- The essence of the claim, i.e. the requirements for debt collection.

- Justification of your claim with the indication of all relevant documents.

- Evidence of the impossibility of obtaining the debt by other means (for example, failure to pay the proposed installment).

It should be remembered that the period for filing a lawsuit may be limited by the statute of limitations for debt collection, which is 3 years from the date when the debt should have been repaid.

At the same time, it is necessary to assess the risks of filing counterclaims by the debtor, which may complicate the procedure and freeze the activity of your organization. It is important to take into account that unscrupulous debtors may delay court proceedings by using their procedural rights, such as petitions for the appointment of expert examinations, attraction of witnesses or requesting documents.

5. Stages of the judicial process

After filing a lawsuit, the court will schedule a hearing at which the parties will present their evidence. It is important that all documents and arguments are prepared in advance so that you can present a clear picture of what happened to the court. The court may require additional evidence or expertise if the complexity of the case warrants it. At this stage, it is necessary to request information about the debtor's property to ensure the enforcement of the court decision, seize property and settlement accounts. Having received a court decision in your favor, it is necessary to apply for a writ of execution and transfer it to the bailiff service. It is important to regularly monitor the actions of bailiffs for compliance with the law. Bailiffs also have the right to seize the debtor's property, block accounts, withhold debts from his salary, etc.

If the debtor does not comply with the court decision, bailiffs may apply various measures of influence, up to the realization of the debtor's property at auction in accordance with the procedure established by law.

6. Appeal

If you do not agree with the court's decision or the bailiff's actions, you have the right to appeal them in the prescribed manner and timeframe. However, it is important to realize that this may prolong the process and require additional costs.

7. Expectations of the procedure

In both out-of-court and in-court debt collection, it is important to keep in mind that these procedures can take a long time. The process may take much longer than the procedural time limits. This may be due to both appeals against the results of bidding in non-judicial recovery and abuse of the debtor's procedural rights in court proceedings.

8. The role of the lawyer in the foreclosure process

Both out-of-court and in-court debt collection is a complex and multifaceted process that requires a skilled approach. It is important to keep in mind that legal procedures can be complex, and mistakes in the collection process can lead to additional costs and delay the process. At the same time, proper assessment of the situation, choice of strategy and prompt response to the debtor's actions are the key factors that determine success in the debt collection process. By contacting experienced lawyers, you can minimize risks and costs, and effectively resolve debt collection issues.

LEX Law Firm is ready to offer you its assistance in debt collection issues. Our lawyers have considerable experience in this area and are ready to effectively represent your interests both during out-of-court and court procedures.