Debt collection: how to proceed and protect your rights

Debt collection is the process by which a creditor seeks to recover an amount owed by another person or entity. This procedure can vary in complexity, depending on the debtor’s willingness to pay or the clarity of the terms of the debt. This article explains what to do in the event of difficulty and explains the rights of both the creditor and the debtor.

What is a debt

It occurs when a creditor formally asks a debtor to pay a sum of money from a contract, agreement or other economic relationship.  Debts may arise from loans, overdue invoices, services rendered or unpaid purchases.

The process can range from a simple reminder to formal procedures, such as the involvement of collection agencies or taking legal action. The main objective is to recover the money owed, including, in some cases, interest or late payment penalties.

Types of debts due

1. Business receivables: Unpaid invoices for goods or services.
2.  Personal receivables: loans, mortgages, or credit cards.
3. Work receivables: Unpaid wages or benefits.
4. Tax debts:  Unpaid taxes claimed by the tax authorities.

In all cases, the claim must be legitimate and requested within the legal deadlines to proceed.

Steps to follow to collect a debt

1. Review the agreement: Check the terms of the contract or agreement that give rise to the debt. Make sure the debt is current and legally enforceable.
2. Contact the debtor: Try to resolve the dispute amicably by sending a reminder or a letter of complaint.  This should detail the amount due, the payment deadline and the consequences of non-compliance.
3. Negotiate a payment plan: If the debtor is unable to pay in full, consider negotiating an instalment plan that works for both parties.
4. Send a demand letter (formal notice letter?): Use registered mail with acknowledgment of receipt to ensure proof of sending.
5. Use a debt collection agency: Hire a specialized agency if the debtor persists in not paying. These companies usually negotiate and collect debts in exchange for a commission.
6. Take legal action: If all attempts fail, consider taking legal action. Depending on the amount, you can opt for an ordinary trial or a small claims procedure, which is more flexible for small claims.

Debtor’s rights

The debtor also has rights during the debt collection process:

• Clear information: they must be informed of their debt and have access to relevant details.
• Disputing the debt: They may claim that the debt is incorrect, unfair, or that it has already been paid.
• Protection from harassment: Abusive practices, such as excessive calls or threats, are prohibited.
• Negotiate a payment plan: Debtors have the right to propose solutions if they are experiencing financial difficulties.
• Protection of essential assets: In some cases, certain assets, such as the principal house or work tools, cannot be seized.

Limitation periods

Debts are subject to a statute of limitations, which varies depending on the jurisdiction and the type of debt.  For example:

• Trade receivables/debts: These generally have limitation periods of between 3 and 5 years.
• Tax Claims/Debts: The terms are generally longer, depending on the country.

If a claim becomes time-barred, the creditor loses the right to claim it in court.

Preventing debt problems

1. Clear contracts: Draft agreements that specify terms, interest, and penalties.
2. Accurate documentation: Keep track of payments and communications.
3. Credit assessment: Before granting credit, check the debtor’s ability to comply with the law.

Conclusion

Debt collection is a process that can be managed effectively with proper planning. Creditors must act quickly, respect the debtor’s rights, and explore all options before resorting to legal action. For debtors, knowing their rights and seeking negotiated solutions helps avoid major problems. In both cases, it is essential to seek professional advice to ensure a fair and transparent process. At BCV Lex, our teams in Bordeaux and Madrid are at your service and operate throughout France and Spain to defend your interests. Don’t hesitate to contact us.