How to Legally Recover a Debt From a Friend

A promise to repay a debt in a week,

means only a request not to bother about it for a week.

Stas Yankovsky

All our readers know well that anyone may, sooner or later, run into money troubles, and such situations often cannot be resolved without outside help. In such cases, we all first turn to relatives and friends. Surely each of us can recall a time when a close person, a friend, or a work colleague asked to be "bailed out" financially. It is good when everything ends well — the debtor honours the obligation taken on and repays the debt on time. Unfortunately, that is far from always the case. When lending money, one must be prepared for the possibility that it may not be returned in full, or on time, whether the deadline was agreed orally or set out in a written contract. The borrower's circumstances may change, their financial situation may worsen, or they may simply decide to take advantage of your kindness and old friendship to pursue their own ends. If the person who fails to repay is a friend or relative, the situation becomes even more complicated. A special regard for that person will hold you back from decisive action using legal tools, even once you realise you have simply been used. According to popular wisdom, lending money is a serious test for a friendship, one that can become a source of disappointment and financial loss. So whether or not to lend is a decision each person must make individually, depending on the situation, their means, and their relationship with the borrower. Nevertheless, it is worth bearing in mind that where significant sums are involved — the kind usually lent for a long term — it pays not to be lazy and to draw up a written agreement. We recommend doing so even where you have the warmest, most trusting relationship with the borrower. All your oral agreements should be carefully set down in the contract. This will help avoid many problems and awkward situations later, since either party will then be able, if necessary, to rely on this or that term of the signed agreement. It is also worth noting that not every piece of paper signed between contracting parties will actually help resolve disputes that arise. What's more, ordinary people may draft and sign a document that, in the event of litigation, may not be recognised as a valid contract — for example, if it lacks the essential terms the law prescribes for that type of agreement. Where the stakes are high, running into the thousands of euros, it is advisable to turn to professionals to draw up a properly worded loan agreement. An attorney with substantial experience resolving civil, including financial, disputes can help draft a loan agreement in a way that protects the interests of both parties. And if one of the parties to the agreement fails to fulfil their obligations, an attorney can help apply effective legal mechanisms to recover the debt from them. In this article, we will tell you about one of the cases from our practice, one that is still ongoing at our law firm.

A young man, Yuriy (name changed), came to us — he ran a fairly successful business of his own selling German car parts on the Russian market. His business was steadily growing, he had no shortage of clients, and Yuriy had no complaints at all about his financial situation. At a social event at a restaurant, the young man ran into his old university friend, Konstantin, who, as it turned out, was at the time living almost next door to our future client. The two old friends were overjoyed — they spent almost the entire night at the bar talking about "old times" and the plans each of them had once had for life. It emerged that, over the ten years since they had last seen each other, each of the former friends had started a family and had children, while Konstantin had already divorced and was in a turbulent relationship with a new partner. Yuriy shared the story of building his business "from scratch," and Konstantin admitted in turn that he had been dreaming for several years of starting his own venture, but simply had no investor... One thing led to another, and Konstantin described his business idea, his projected income and expenses, and his growth prospects. Yuriy, more experienced in such matters, was sceptical of his friend's far-reaching plans, but, apparently moved by the wave of nostalgia and without fully thinking it through, promised his friend he would lend him a substantial sum to develop the business. Without a doubt, the successful entrepreneur would later regret that rashly made promise many times over. In life, however, he had always followed the principle that one must stand by what one says. So, after some thought, he decided to take the risk and lend his friend the money, entering into a loan agreement — drafted by himself — for no small sum: 48,000 euros. Unfortunately, no one gave any thought to the fact that this agreement lacked many essential terms, including the deadline and procedure for repaying the borrowed amount.

So the two friends signed the agreement, decided to "keep it in the family," and orally agreed that Konstantin would repay the debt in equal annual instalments over five years, or sooner, if possible, should "business take off." Yuriy made the agreed bank transfer to Konstantin's account on the agreed date. At first, everything seemed to be going according to plan: the two young men really did meet regularly, sometimes with their partners, sometimes without. Konstantin shared his early successes, and Yuriy happily gave advice. About a year and a half after the agreement was signed, our future client asked his friend to repay part of the loan. Konstantin promised to comply and, over the following month, did indeed transfer 5,000 euros to Yuriy's account, followed by another 5,000 euros. As it later turned out, however, that was as far as it went. Konstantin became increasingly reluctant to stay in touch, citing a "busy season in the business," before disappearing altogether. It must be said that Yuriy did not attach much importance to his friend's "disappearance" for quite some time, being occupied with his own affairs. Once the entrepreneur realised that the agreed date for the next payment had long since passed with no word from the debtor, he raised the alarm and began searching for Konstantin. It soon emerged that Konstantin had not lived at the address Yuriy knew for several months, and the young man had no idea of any other address for the failed businessman. On the recommendation of his business partners, Yuriy turned to our law firm for legal advice and support. We listened carefully to our client's story and examined the terms of the agreement he had signed with his friend. At that point, it was clear there was no reasonable basis for expecting the remaining debt to be repaid voluntarily. One of our client's concerns was that the limitation period for this financial claim might expire. The attorney at our firm who took on Yuriy's case explained that, under German law, if a loan agreement does not specify a repayment date, the lender is entitled to send a written notice of termination and demand repayment of the loan at least three months before the intended termination date. Where the lender has good reason to fear the loan sum will not be repaid, or where the debtor cannot be reached, that three-month notice period does not need to be observed. Our client's earlier demand that the borrower repay part of the sum could not be regarded as a notice of termination, since it concerned only the repayment of part of the borrowed amount and did not affect the agreement's continued validity. The limitation period, which begins to run from the date of the notice of termination demanding repayment of the full loan amount, had therefore not yet begun. Having obtained the appropriate power of attorney from Yuriy, we actively set about tracing the missing debtor. We had already requested and obtained information about Konstantin's current place of residence. The attorney representing our client's interests will next prepare an appropriate letter terminating the loan agreement and demanding repayment of the entire sum. Under the law, the pre-trial stage is a necessary condition before the matter can subsequently be brought before a court. Should this dispute prove impossible to settle out of court, we will, of course, represent our client's interests in court.

Having a court judgment does not mean the problem is finally solved (the chances of actually recovering anything depend significantly on the defendant's financial situation). If the defendant does everything possible to avoid complying with the judgment, or tries to drag the process out, the claimant has the legal right to enforce the judgment by filing an appropriate application with the court bailiff (Gerichtsvollzieher), paying the bailiff's fees for each action taken against, or visit to, the defendant. Enforcement through the court bailiff does not always lead to a swift, positive result. Every such case is unique and depends on a range of factors, which is why the most effective way to resolve the problem is to engage attorneys to provide legal support throughout the enforcement procedure.

Enforcement proceedings comprise the following stages (in general terms): once a court judgment has become legally binding, the first stage is assessing whether the losing party is able and willing to comply with the judgment voluntarily;

- if voluntary compliance is refused, the legally provided means of compelling performance are applied: seizure of funds and assets, attachment of income, and imposition of a ban on the right to drive a personal motor vehicle;

- conclusion of the enforcement proceedings, either because the debtor has fulfilled their obligations or because the loss has been compensated through the enforcement measures applied.

When attorneys file an application with the court bailiff (Gerichtsvollzieher), they also carry out the following actions:

- filing an enforcement application (Vollstreckungsantrag – einen Gerichtsvollzieher beauftragen) and providing the bailiff with the writ of execution;

- monitoring the bailiff's activities and, where necessary, challenging the bailiff's actions or inaction before the courts;

- negotiating with a defendant who is avoiding compliance with the judgment; where necessary, drawing up settlement agreements and instalment payment plans;

- supporting the recovery procedure, including through the realization of the defendant's assets;

- explaining matters to, and advising, the client on all questions relating to the above-mentioned mandate, i.e. enforcement of the judgment.

- full or partial reimbursement of the costs incurred by the claimant in the enforcement proceedings.

The attorney at our firm handling Yuriy's case is using every legal tool and every available means to bring the client's case to a successful conclusion. Professionalism and the consistent application of all the necessary legal mechanisms are, after all, a hallmark of our work. Drawing on our client's experience, we would once again like to advise our readers, in order to protect their own interests, to put any agreements that go beyond everyday transactions in writing, after first consulting an experienced attorney who can help avoid unforeseen situations down the line and help you assert your rights and legitimate interests under the terms of the agreement you have concluded.

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THE LAW FIRM REPRESENTS CLIENTS' INTERESTS THROUGHOUT GERMANY

Civil Law

All rights reserved. Copying or republishing this article requires a link to the original source.