Debt collection in Germany is a procedure that demands strict adherence to a specific methodology of action and the precise formation of a documentary basis for carrying out the debt collection at subsequent stages. It is impermissible to apply standard methods and documents when collecting a debt, because every debt collection case is unprecedented.
The debt collection procedure itself is often lengthy, painstaking and complex, caused by the murkiness of the case's circumstances, so it is worth entrusting the conduct of the debt collection procedure to experienced and competent attorneys and lawyers rather than handling the matter on one's own.
That is why, in such situations, we advise entering into agreements with law firms, attorneys' offices and bureaus for representation of interests in debt collection.
Important to know
Debt collection in Germany generally proceeds in two stages: the pre-trial dunning procedure (German: Mahnverfahren) and, if that does not help, litigation before a court of general jurisdiction.
Before the claimant turns to the court with a claim, it is necessary to establish the reason the debt arose. A debt may arise on the basis of an agreement, legal relationships connected with non-performance of contractual obligations, or matters related to alimony, wages and other areas of law.
The statement of claim filed with the court must indicate:
- the name of the court to which the claim is filed;
- who the claimant is and the claimant's place of residence/registered address;
- who the defendant is and the defendant's place of residence/registered address;
- the reasons for which the claimant is raising the claims, and the arguments confirming that the claims raised are genuine;
- the claimant's actual claims;
- the value of the claim;
- a list of the documents attached to the claim;
- the claimant's contact information;
- the claimant's signature and a document confirming the claimant's authority.
The claim must be filed with the court at the defendant's place of residence/registered address.
Stages of debt collection
The problem of debt collection remains one of the most widespread today, given the global financial crisis. An ever-growing number of legal entities and individuals have recently been suffering from the dishonesty of employers and financial partners. Before starting the collection process, it is necessary to become familiar with its main stages.
1. The preparatory stage.
At this stage, it is necessary to gather complete information about the debtor and about the causes and status of the debt. Any lawful methods can be chosen to achieve these goals, whether official sources, personal information, witness testimony, and so on. In the process of gathering data, particular attention must be paid to the structure of the indebted enterprise and its financial position (an official attorney inquiry is made to the tax authorities, the chamber of commerce and industry, the German employers' association, and the commercial register). If it is a private individual, then that person's level of income, financial position at the time of the claim, and so on must be determined. This stage cannot be skipped, because it will be very difficult to choose the best strategy for collecting the debt from a legal entity or an individual, since it is very often possible to resolve debt collection issues already at the pre-trial stage.
2. The pre-trial stage.
This stage is characterized by the selection and search for documents to prove the information obtained at the preparatory stage. It is necessary to carefully study the documents and the business correspondence between the injured party and the accused party. Diligence and attentiveness at this stage will help develop the ideal tactic for the court battle. In the course of the work, bank transactions, payment accounts, sales receipts, promissory notes and the like are examined very carefully. At the pre-trial stage, an amicable settlement between the parties is possible provided the accused party fully repays the debt. Such a practice is the most common, since both parties clearly understand the financial expenses involved in losing the case.
3. The judicial phase.
The final, decisive stage is the court hearing itself, or a series of court hearings, since proceedings can last for years.
Necessary documents
To begin the debt collection procedure, it is necessary to have a set of documents; otherwise, the process will not be given the green light.
These documents include the following:
1. Documents confirming the debt.
2. Documents reflecting the actual amount of the debt.
3. Documents proving that the creditor has taken measures to recover the funds.
Such documents include:
- contracts;
- addenda and amendments to contracts;
- certificates of completed work;
- promissory notes;
- payment orders;
- invoices;
- correspondence with the debtor in any form;
- consignment notes / bills of lading;
- sales receipts;
- bank payment slips;
- receipts for cash payments.
Frequently asked questions about debt recovery in Germany
1. Who bears the cost of the attorney's services and the court costs in the main court proceedings? Is the losing party obliged to bear the court costs?
In the main proceedings before German courts, the overall costs (court fees and the attorney's fees) are borne by the losing party. If necessary, the costs can be apportioned between the winning and losing parties on a pro-rata basis. The question of apportioning the costs is decided by the court. The winning party can include the amount of the costs in the so-called cost-determination procedure and, based on the decision in the case, enforce the court's judgment. The parties' liability for the court costs is, however, joint and several, so the winning party bears the risk of the losing party's insolvency.
2. Who bears the costs of enforcing the court judgment?
a. The costs of enforcing the court judgment (court costs and the attorney's fees) are borne by the debtor. The creditor may determine the costs in a separate procedure for establishing the amount of the costs, or track the payment of the costs during enforcement of the judgment.
3. How long do the main court proceedings take?
Claims for the recovery of amounts up to 5,000 euros are heard in the lower courts, while amounts above 5,000 euros are heard in the regional courts (Landgerichte). In the lower courts, the main proceedings concerning collection claims last from three to six months. A claim may also be decided in a shorter time. In the regional courts, in the case of simple matters, one should expect the same time frames. In complex cases that require a panel of judges (three judges), the process can last up to two years, especially if experts need to be involved. In the higher regional courts (Oberlandesgerichte, hearing appeals against decisions of the regional courts), the process usually lasts more than a year.
4. Is there an expedited procedure for debt collection?
In debt collection claims, there is the option of the court dunning notice procedure (German: Mahnverfahren). The procedure is standardized, and special forms are used to carry it out. In the courts of some districts, there is even an automated system for dunning notices (via data-transmission channels). The lower courts are authorized to handle dunning notices (irrespective of the amount of the claim). The court does not review the claim received on its merits, but examines it only formally. A dunning notice is prepared and delivered to the debtor. The debtor may object to it within two weeks of receiving the court notice. After payment of the court costs, the case is transferred to the court for the main proceedings, in which the claim is substantiated. If the debtor files no objection, or files it too late, an enforcement order for the court dunning claim is issued, which is likewise sent to the debtor. If, again, no objection is filed, the court's decision on such a claim becomes legally binding, meaning it is enforceable. The process usually lasts from six to eight weeks. Reduced court fee rates apply during the dunning notice procedure. The attorney receives the full fee rate for the court proceedings and half the fee for proposals to draw up the enforcement order.
5. What options exist for enforcing a court judgment? Which of them should be preferred?
In Germany, the following options exist in matters of enforcing judgments on claims:
- attachment of assets and transfer of the debtor's claims against third parties (for example, a bank deposit, claims against a business partner, a claim against a financial institution for a tax refund, the right to receive wages);
attachment and realization of movable property, and realization of real estate.
- The most correct and fastest way to enforce a court judgment is considered to be the attachment of the debtor's claims against third parties. This matter falls within the competence of the lower court at the place of residence. The decision to attach assets is made by the lower court. The creditor must confirm the existence of claims against third parties. When the court judgment on the attachment of the debtor's assets is issued, the actual existence of the claim is not verified. Attaching the debtor's movable property and realizing it often does not bring particular success. Although in most cases movable property can be attached, its realization does not produce the expected financial results. Enforcement of the court judgment with respect to real estate takes place either by way of a mortgage, which must then be realized, or by way of immediate forced sale of the property at auction, or by way of introducing forced administration of it. The process of realizing a plot of land is often rather lengthy and costly. In this case, specialized knowledge is required to determine the most effective way to realize the real estate.
6. How long does the procedure for enforcing a court judgment last?
- Court judgments on collection claims are enforced comparatively quickly. By way of notice, the creditor can inform the third-party debtor of its objection regarding the payment of funds. The creditor then seeks the attachment of the funds, as well as a court judgment transferring the debtor's right to the creditor. Even before the notice of the decision is served on the debtor, there is in any case the option of a preliminary payment prohibition (equivalent to an attachment), which provides a psychological pressure effect. When a correctly completed application is filed, the decision on it is usually made within two to three weeks of filing.
- Enforcement of the court judgment with respect to movable property falls within the competence of the court bailiffs (Gerichtsvollzieher). They are chronically overloaded and are not always very flexible, so enforcement of the court judgment is often bogged down.
- Enforcement of the court judgment on real estate falls within the competence of the court. When a correctly completed application is filed, one can count on its timely handling. In the so-called new federal states (Saxony /Sachsen/, Saxony-Anhalt /Sachsen-Anhalt/, Mecklenburg-Western Pomerania /Mecklenburg-Vorpommern/, Brandenburg /Brandenburg/ and Thuringia /Thüringen/), the courts dealing with the land register are heavily overloaded and short-staffed, so delays must be expected. The realization of real estate can take a very long time, so the proceeds from the sale can only be expected after one to two years.
7. What can a creditor do if enforcement of the court judgment has not been successful?
In principle, the creditor can use all of the above-mentioned options for enforcing the court judgment. The creditor may also try to use all these options in parallel. If the court judgment does not bring success, the creditor can demand a written statement from the debtor regarding the status of the debtor's assets.
In that case, the creditor receives a court record containing the debtor's statement. This often helps find new options for enforcing the court judgment, since the debtor is thereby obliged to provide new information, including, for example, about the debtor's employment. Enforcement of the court judgment can be repeated until the debtor settles with the creditor. It is recommended to repeat the procedure for issuing an enforcement judgment every two to three years.
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