Collection of problem debts

Problem debt collection is the process of forced repayment of a debt that the debtor has not paid voluntarily within the established period. A problem debt is considered to be a debt that is overdue and requires additional legal actions to repay it. Most often, this is a case of non-fulfillment of obligations under a loan agreement, when the borrower does not repay the principal amount of the debt or interest. Such a situation creates risks for the creditor and requires a prompt response. It is important to understand that the current legislation of Ukraine clearly regulates the procedure for collecting problem debt, establishing a balance between protecting the interests of the creditor and guaranteeing the rights of the debtor.

Pre-trial debt settlement

Before going to court, it is advisable for the creditor to try to resolve the debt issue out of court. This is faster and cheaper than litigation, and often allows you to return the money without unnecessary expenses.

Main steps:

1. Claim to the debtor. The creditor sends a written demand with the amount of the debt, the payment deadline and a warning about a possible court.
2. Negotiations and restructuring. If the debtor is ready to cooperate, the parties can agree on a new payment schedule, installments or a reduction in fines.
3. Property verification. It is important to find out whether the debtor has income or assets to repay the debt. If there is no property, it is worth moving quickly to the next legal steps.

Pre-trial settlement is beneficial for both parties: it saves time, money and helps to preserve the working relationship.

Judicial debt collection

If an agreement with the debtor is not reached, the creditor goes to court. The statement of claim indicates:

• the amount of the principal debt;
• accrued interest;
• fines, penalties or other sanctions provided for by the contract or law.

According to the article of the Civil Code of Ukraine, a debtor who has overdue payment is obliged to pay not only the amount of the debt, but also inflation losses and 3% per annum of the overdue amount (unless otherwise provided for by the contract).

Please note that during martial law, special rules apply: fines and penalties for late payment are not accrued, and those accrued after 02/24/2022 are subject to write-off. That is, the specified article of the legislation is temporarily not applied. However, the obligation to return the loan principal and interest remains. After the end of the war, the standard collection conditions will again apply in full.

Before filing a claim, the creditor should check the statute of limitations. Usually, it is 3 years from the moment when it became known about the non-fulfillment of the obligation. If this period is missed and the debtor declares this, the court may refuse to satisfy the requirements.

During the consideration of the case, the creditor must provide evidence: a credit agreement, payment documents, reconciliation reports, correspondence, etc. The court may seize the debtor’s property so that it is not sold or donated before the case is completed.

After making a decision in favor of the creditor, the court issues a writ of execution, which is submitted to the enforcement service. The debtor can appeal the decision in an appeal or cassation, so the procedure is sometimes delayed.

Debt collection under a credit agreement

Most often, problem debts arise under credit agreements. A credit agreement is an agreement under which a bank or other financial institution lends money to a borrower on the terms of mandatory repayment, payment of interest and within a certain period. The agreement fixes the amount, interest rate, payment schedule and sanctions for violation of the terms. If the borrower stops paying, a problem debt arises.

The process usually looks like this:

1. sends the debtor a notice of default and a demand to pay the debt.
2. If the problem is temporary, they may offer credit holidays or restructuring.
3. If the borrower refuses to pay, the bank terminates the agreement early and goes to court. In the lawsuit, the creditor demands the
4. return of the debt, interest and penalties for late payment.

If the loan was secured by collateral (e.g., a mortgage) or a guarantor, the creditor may demand the debt not only from the borrower, but also from the collateral or from the guarantor. Therefore, collection under a loan agreement always requires an analysis of all additional agreements and strict compliance with the law.

It will also be useful: Lawyer for recovery of debts of an individual – collection of debts by receipt

Enforcement proceedings: forced execution of the decision

Even after winning the court, an unscrupulous debtor may not pay. Then enforcement proceedings begin – the official process of forced execution of the court decision. It is regulated by the Law of Ukraine “On Enforcement Proceedings”. The creditor can choose a state or private enforcement agent. In any case, the debtor is given a period for voluntary payment, after which coercive measures are applied.

The creditor receives a writ of execution and submits it to a state or private enforcement agent. Then the enforcement agent:

• seizes the debtor’s accounts and property;
• searches for assets;
• organizes the sale of property at auction;
• may collect part of the debtor’s salary or other income.

As a result of these actions, the funds are transferred to the creditor.

This stage is often the most complicated and lengthy. The creditor pays an advance payment, and the debtor is charged an enforcement fee. If the assets are small or the debtor is hiding assets, the process may be delayed. If the debtor has no assets and it is impossible to collect the debt, the debt may be declared hopeless.

Legal support in debt collection

Collection of problem debt is a complex process that requires the creditor to have knowledge of the legislation, compliance with deadlines and clear control of each stage: from claim work and court action to enforcement proceedings. Success depends on the right strategy: whether it will be an amicable settlement, court collection, working with a guarantor or foreclosure on pledged property. Therefore, the best solution is to involve professional lawyers.

Specialists of the law firm “Prikhodko and Partners” have many years of experience working with problem debt. We will help:

• prepare a claim and conduct negotiations with the debtor;
• develop an optimal strategy for judicial collection;
• represent your interests in court;
• accompany enforcement proceedings until the actual receipt of funds.

If you are faced with problem debt and want to protect your financial interests – contact us. We will provide comprehensive support and do everything possible to ensure that you actually receive the funds you are entitled to.