DEBT COLLECTION IN GERMANY

Assistance in the necessary legal preparation and the extrajudicial and judicial phases of debt collection in Germany and Italy

italienisches Erbrecht

Every businessman is anxious to collect his outstanding debts and ensure that payments are received. To get the debtor to pay, the creditor can send one or more official (out-of-court) reminders, or he or she can start legal collection proceedings. Sometimes it may even make sense to go directly to court and file a lawsuit if the debtor is just trying to stall for time. In addition to these considerations, the more important issues such as statute of limitations and regulations within the EU are discussed below, where we explain what you need to do to enforce your claims in cross-border proceedings.

HOW TO DO DEBT COLLECTION IN GERMANY?

There are several ways to collect a debt in Germany, as we will see below. In addition to the principal sum, the amount of the claim will also include the legal fees incurred by So Sino. 


Under certain circumstances, the creditor may also be entitled to damages for delay against the defaulting debtor. 


The main consequence of late payment is that the creditor is entitled to default interest. 


According to Section 288 (1) of the German Civil Code, the current interest rate is 5% above the base rate for consumers and 9% above the base rate for legal transactions in which no consumer is involved.


Compensation may also include attorney's fees and all costs incurred in taking action to recover the debt owed.


When enforcing cross-border claims in the EU, the businessperson should be aware of both German and Italian enforcement procedures in order to assess the appropriate tool to recover the debt and any other damages suffered.

DEFAULT NOTICE TO THE GERMAN DEBTOR

In order to be able to go to court to collect a debt under German law, there must be a claim whose due date results from the concluded contract or the law. Debt collection Germany.


In principle, the due date - i.e. the obligation to pay according to § 271 BGB - is immediately after the conclusion of the contract. Depending on the type of contract, different rules apply. In the case of a service contract, payment must be made after the service has been provided. In the case of a contract for work, however, the time of acceptance of the work is decisive. In the case of a sales contract, payment is due upon delivery of the goods.


It is common practice to set a payment deadline, which may be several weeks after the invoice date.


If payment is not made even then, the contractor is usually obliged to remind the debtor in writing of his obligation to pay.


The reminder does not have to be in a prescribed form, but for evidentiary purposes only, it must always be sent by registered mail.


Content of the reminder:


-) Invoice number and date;


-) Delivery note number (also with date);


-) Terms of payment;


-) Services (listed in detail).


While as a debtor you may be in default without a reminder, the law usually requires at least one reminder from the creditor to the debtor. However, it is customary to give a reluctant customer a second or even a third chance to pay. The possibility of (still) resolving the unsatisfactory situation out of court is always preferable to a time-consuming and costly legal dunning procedure.


Of course, it depends on the solvency or integrity of the debtor how reasonable it is to grant a deferral. 


To avoid the hassle of hiring a lawyer, a good first step for the business owner is to send an initial reminder that politely points out the nonpayment. This should include a copy of the invoice and a request for immediate payment.


After a further two weeks, it is advisable to send a second reminder. In this reminder, the request for payment can be more explicit and emphasized by stating a specific payment deadline (approximately 10 to 14 days after this reminder).


If there is still no payment after the second reminder, the only option left - if you decide to send a third reminder - is to threaten legal action if payment is not made.


Filing a lawsuit only makes sense if the business owner still expects payment or if you do not want to jeopardize a good, long-standing relationship with a particular customer.


If the debtor fails to meet his contractual obligation to pay, this has additional negative consequences for him: By not paying, he is legally obligated to pay default interest and damages.


The default is usually triggered by a reminder from the creditor.


Again, no specific form is required. However, it is advisable to send a registered letter (with acknowledgement of receipt) in order to satisfy the creditor's or contractor's burden of proof.


The debtor may be in default without a reminder in the following cases:


-) the time of performance is determined by the calendar (e.g. "10 days after the invoice date").


-) payment is linked to a previous event (e.g. "payment will be made three weeks after delivery").


-) the debtor seriously and definitively states that he will not pay.


-) the debtor does not pay despite a reminder.


-Failure to pay within 30 days ("30-day clause", applicable only if the debtor is not a consumer).

THE GERMAN INJUNCTION

If reminders do not produce the desired result, the businessman (creditor) can either sue the debtor directly for payment of the amount owed or apply for an injunction.


In this way, the creditor obtains an enforceable title which he can have enforced by the bailiff.


The judicial procedure;


In principle, the order for payment procedure (judicial procedure) is allowed only when there is a demand for payment of a sum of money.


The procedure is not applicable in the case of consumer credit contracts if the debtor's payment depends on a counter-performance by the creditor and this has not yet been made.


The court of the plaintiff's domicile (or of the company's registered office) has jurisdiction for the injunction procedure.


An application for an order for payment must be made in writing and must contain the following information


-) The amount of money demanded;


-) Exact description of the claim (e.g., contract of sale or contract for work or services);


-) Names of the parties (including the legal representative); and


-) Indication of the court having jurisdiction over the claim.


The court must serve the order on the defendant without delay.


If the defendant lodges an objection within the two-week time limit - no grounds are required - and if a claim is filed, the order for payment procedure is transferred ex officio to the competent court. If the ordinary case is filed, the creditor is obliged to justify the claim in question. 


If the debtor does not object or does not object in time, the court issues the enforcement order on the basis of the payment order on demand. This order constitutes a title (independent and enforceable) suitable for initiating enforcement proceedings. The debtor may file a written objection to the enforcement order. The objection then leads to an ordinary lawsuit.

ENFORCEMENT IN GERMANY

How does enforcement work in Germany?


If the creditor is in possession of an enforcement order, enforcement can be carried out on both movable and immovable property.


In the case of enforcement against movable property, the bailiff of the competent local court is responsible. Enforcement is carried out by means of attachment. Money is paid directly to the creditor, otherwise the creditor receives the proceeds of the seizure or auction.


In the case of enforcement against immovable property (e.g. houses or apartments), the creditor must apply to the enforcement court. Both forced sale and forced administration are viable options.


If pecuniary claims (e.g. rent and lease income, wages) are seized, this is done by means of a seizure and transfer order issued by the enforcement court. Third party debtors, such as employers or banks, must then transfer payments directly to the creditor.

ENFORCEMENT OF AN INTERNATIONAL CLAIM

In the case of uncontested pecuniary claims, a European Enforcement Order provides even greater legal certainty, since the title obtained at the national level (judgment) is automatically recognized in the other Member State without any intermediate proceedings.


The claim must be uncontested, i.e. the debtor has not contested the claim, expressly acknowledged it or failed to appear at the court hearing.


The European Enforcement Order is issued (without hearing the debtor) after the application has been filed.


Which court has jurisdiction to issue a European Enforcement Order?


If the debtor fails to pay and is domiciled or resident in another European country, an order for payment can be obtained in Italy. The condition is that the debtor is domiciled in a country of the European Union.


In all other cases, the only way to enforce a claim is to go to court, which can take much longer and involve high costs.


For order for payment proceedings in cross-border cases, the court has jurisdiction if it also has "international jurisdiction" in the corresponding ordinary court proceedings. It must be determined which local court has jurisdiction over the order for payment.


This can be determined by a contractual agreement or by general terms and conditions. The contractual agreement must be in writing. 


In the absence of an agreement, the place of jurisdiction for contracts is, for example, the place of performance under Article 5(1) of the Regulation. The place of performance is the place where the goods or services are to be delivered or provided.


If the Italian court does not have jurisdiction, the injunction procedure must take place at the debtor's domicile abroad.


If the amount in dispute is less than 2,000 euros, a European procedure for small claims in civil and commercial matters can be requested.


There is no representation by a lawyer and the procedure is mainly based on standardized forms, such as a claim form instead of a pleading.


The judgment obtained is uniformly recognized in the Member States and can be enforced immediately at the debtor's domicile.


STATUTE OF LIMITATIONS FOR DEBTCLAIM IN GERMANY

When is the statute of limitations for claims arising from contracts between merchants or between merchants and private individuals under German law?


Rights and obligations arise from a concluded contract. An obligation is, for example, the payment of the purchase price. However, the seller can only claim the purchase price within a legally defined period of time. If the seller lets this period expire, the claim is time-barred, i.e. the debtor can invoke the statute of limitations and no longer has to pay. Even if the claim still exists, it can no longer be enforced in court!


With regard to the statute of limitations, December 31 should always be kept in mind. A statute of limitations generally begins after the calendar year in which the claim arose.


The ordinary limitation period according to §§ 195, 199 BGB is three years.


Example: Purchase contract concluded on 18.02.2018, limitation period expires on 31.12.2021.


In addition, the German Civil Code provides for a large number of limitation periods of varying lengths.


Some of the most important examples are listed below:


-) Warranty rights under a contract of sale: 2 years


-) Claims for personal injury: 30 years


-) Claims with title (judgment or enforcement claims): 30 years


-) Malicious concealment of a defect in the object: 3 years


-) Warranty rights arising from a contract for the purchase of a building or items for a building: 5 years


The limitation period may be suspended. However, after the suspension, the limitation period starts running again from the point at which it had stopped. As a result, the limitation period is extended by the period during which it was suspended (e.g. in the case of negotiations between the creditor and the debtor).


There are also cases in which the limitation period begins to run from the beginning. This is the case, for example, when there is an acknowledgement by the debtor or when a new thing is delivered as part of the subsequent performance of a sales contract.


Events that lead to the suspension of the statute of limitations are, for example


-) Negotiations between the creditor and the debtor;


-) Mediation, conciliation or an attempt at subsequent enforcement;


-) Initiation of litigation;


-) Injunctive relief.


Important: In the case of an injunction, the stay ends six months after service of the payment order. Therefore, if by chance the order is contested and the creditor does not institute the ordinary action to continue, the limitation period will start running again after six months.

COSTS OF A DEBT COLLECTION IN GERMANY

The cost of debt collection is a problem that is particularly felt in Italy by both small and large companies. This is because the procedure can be cumbersome and sometimes the cost of recovery can equal or even exceed the value of the debt itself. The main problem lies in the choice between the extrajudicial route, which is generally cheaper but not always effective, and the judicial route, which is more expensive but may offer a better solution. Additional difficulties arise from the variability of legal fees, procedural costs and the time required for the outcome of the proceedings, which can significantly affect the cash flow of the creditor company. In this context, it is crucial for companies to carefully consider which recovery strategy to choose, striking a balance between the effectiveness and economic sustainability of the measure.

1. EXTRAJUDICIAL COSTS


In the out-of-court phase, the goal is to reach an agreement between the parties if they agree to settle the dispute amicably. These are often parties with a long-term relationship, such as business partners.


Out-of-court settlements are often less expensive and time-consuming than litigation. 


If the attorney asserts an out-of-court claim with which the debtor is in default, the attorney's fees may be claimed as damages for delay (§ 280 (2), § 286 BGB). The decisive factor is that the conditions for default are already met before the lawyer is called in.


In court proceedings, however, there is no agreement, but rather a judgment, which the parties must then comply with.


2. COURT COSTS


When you file a lawsuit, you have to pay court costs. You must first pay an advance on the court costs. The court will not begin its work until the fee is received.


In addition to court costs, there are fees for the attorney.


Do I need a lawyer for my case?


If the amount in dispute is more than 5,000 euros, the district court usually has jurisdiction. Here you are obliged to have a lawyer. This means that a lawyer must file the case on your behalf and represent you at the hearing. You will also need a lawyer if you lose at first instance and want to appeal.


If the amount in dispute is less than €5,000, a lawyer is usually not required. You can also file a claim on your own and argue your case in person at the court hearing.


Even if the amount in dispute is less than €5,000, it may still make sense to hire a lawyer if you are confident that you will win the case, since the loser will have to pay all the costs, including your lawyer's fees.


How much does a lawyer cost?


Both the lawyer's and the court's fees depend on the amount in dispute.


The lawyer's fee is set by the Lawyers' Fees Act (RVG). Court costs are regulated by the Court Costs Act (GKG). In order to minimize the risk of legal fees and to avoid hopeless litigation, the costs can be estimated in advance.


Who has to pay at the beginning of the process?


Whoever initiates a lawsuit in Germany must pay court fees in advance, which vary depending on the value of the matter over which the parties are litigating. The value on which the fees to be paid to the court are determined is calculated according to the result that one hopes to obtain in the outcome of the case; and this even if it is only an expectation that is far from certain (in fact, no one can know whether the court judge will fully agree with us).


Loser pays!


If you win your case in court, in the vast majority of cases, the other side has to pay all the costs incurred: the entire court fee, your attorney's fees, and even the fees of witnesses and experts. The same is true if you lose. If you settle, however, the parties negotiate who will pay what legal fees.


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