Debt Collection Germany

                    DEBT COLLECTION IN GERMANY
      A Guide to successful recovery -  10 important tips
   by Dr. Frank N. Schmitz, Rechtsanwalt, COELER LEGAL
1. Don't wait too long
2. Never instruct a debt collection agency
3. Don't waste time with unnecessary proceedings
4. Always keep track of the personal situation of the debtor
5. Prepare a file with all supporting documents and evidence
6. Try to secure assets
7. Documentary proceedings
8. Use criminal proceedings
9. Enforcement of Court orders and Judgements
10. Enforcement of foreign judgments
1. Don't wait too long
If you have realized that your debtor is reluctant in payments or has stopped it completely, don't wait for better times. If you realize changes in the people managing the company, in the bank accounts or the seat / domicile of the debtor company, it is most propably too late and the race of creditors for the last assets has already begun. In Germany, as in most other European countries, it is crucial to be the first getting assets or payment from the debtor before insolvency proceedings start and the receiver freezes all assets. One those proceedings have been filed, ordinary non-privileged creditor without securities such as goods under retention of title only get a very low quota (< 2 %) if any.
Therefore, instruct a lawyer and ask him to act as quickly as possible.
2. Never instruct a debt collection agency
In Germany debt collection agencies (Inkassobüro) may not sue debtors in Court. They just send letters of invitation or call private debtors. If this fails they need to hand over the collection file to a lawyer who is admitted to the Bar. That means you have lost time and money and need to pay the lawyer again. May be the debtor has now disappeared or is bankrupt. Debt collection agencies only make sense in case of small, non disputed claims against private consumers.
3. Don't waste time with unnecessary proceedings
Some lawyers may tell you there is a quick procedure called "Mahnverfahren" (order for payment procedure) in Germany. Don't go for that, it's a waste of time. The debtor has the right to object within 2 weeks time and he does it in 99% of all cases. That means the case will be transferred to the ordinary Court procedure and you have lost at least 3 months because now you have to start again.
It is also useless to enter into lengthy discussions with the debtor. He just wants to gain time. It is much better to sue him immediately and then negotiate. You can withdraw civil proceedings at any time. But you are in a much better position to negotiate if you have already sued him and the Court has invited him for the hearing. The Court fee you have advanced may be included in the settlement agreement with him.
4. Always keep track of the personal situation of your debtor
You should always be aware that your customer may come into a situation where he might be forced to stop payments or favour other creditors. Even long term and reliable customers may suffer under negative economical circumstances. Therefore, carefully note every change in the customer relationship, in the personal situation of your debtor such as changes in directorship, adress, bank account, company name, shareholder etc.
5. Prepare a file with all supporting documents and evidence
Prepare yourself for coming legal proceedings in which you need the following information:

- Full name (if natural persons) respectively company’s name, legal form, full name of managing director, registration no. with the commercial register, complete adress – very important: bank details

- Contractual documentation, terms and conditions, correspondence, invoices, delivery notes, reminders etc.

- Names and adresses of witnesses.
6. Try to secure assets

Once your customer is insolvent you have no chance to recover your debt. Therefore, it is crucial to secure assets beforehand and to make it safe against bankruptcy proceedings. Under German and international law, there are several appropriate ways to do this:

- Delivery under retention of title
Ask a lawyer to draft a clause before you sign the contract. German law provides for a way to keep the ownership of the goods even if your customer has sold it to third parties.

- Ownership by way of security
Ask for property of the customer which can be transferred into your name as a security for the business relationship and which will be retransferred at the end. Property to be used may be real estate, warehouse, other goods, cars or alike.

- Assignment of claims
Ask for claims of your debtor against third parties s a security for the debt. If he cannot pay you, you may ask for payment irectly from his debtors.
- Personal guarantees and bonds
Ask for personal guarantees of shareholders, director or other creditworthy people in order to secure your claim. Usually, he will not provide for a bank guarantee but personal guarantees are free of charge.

- Credit insurance
Ask for credit insurance.

- Notarial deed acknowledgment of indebtedness
Ask for such a deed ("Notarielles Schuldanerkenntnis“ which serves as an execution deed against the debtor. This document is better than a Court judgment since it cannot be appealed, is quicker and less expensive. However, a debtor will only give you such a deed if he has no other choice, so it is rather seldom.
7. Documentary Proceedings
Once you are forced to go to Court in Germany, please note that there are special types of proceedings such as documentary proceedings ("Urkundenprozess"). If you can prove your claim with documents such as contract, delivery note, invoice etc., use this way. The terms for the defendent to defend and to present counter evidence are limited compared to ordinary proceedings. For instance, he may only defend himself with rights which are contained in documents as well. In most cases, he will be excluded and the Court may issue a "Conditional Judgment" allowing you to immediately freeze his assets such as bank accounts. Any objections of the debtor will then be discussed in a subsequent procedure but then you are – hopefully – in a better prosition due to your security on his account.
8. Criminal Proceedings
Sometimes, a debtor has entered into agreement with you while he was already insolvent but didn't tell you. This is a fraud under German (and any other law). You may file a criminal complaint against him enabling police and attorney general to investigate against him. This indeed will put him under serious pressure and hopefully faclitates any settlement talks. If he agrees to settle, you may withdraw your complaint.
9. Enforcement of Court Orders and Judgments
Once you have received a Court Order, Judgment or similar legal title you shouldn't wait to execute it. Even before obtaining legal force, you may file for provisional means e.g. to secure assets, bank accounts. Don't wait for the bailiff having time for your case (which might take 3 months and more). Freeze debtor's bank account, cars, real estate by court order. It is helpful if you have always kept track of the debtors personal situation (see # 4 above) which serves you to choose the approprate legal means in enforcement.
10. Enforcement of Foreign Judgments
If you have already obtained a Court Judgment (either in arbitration or ordinary Court proceedings), you should immediately take care of service and notification to the debtor. If you have a Judgment from a Court of a European member state, you need a European Title of Execution which will be issued by the Court who rendered the Judgment. In case of an arbitration award, enforcement is done according to the New York Convention on the Acknowledgement and Enforcement of Arbitral Awards. Usually, this procedure is very quick in Germany.
Specializing in debt collection, commercial and business law, recovery of debts, recognition and enforcement of foreign and domestic judgements, arbitration and mediation, claim management, international contracts.
D-20457 Hamburg
Bolten Court
Mattentwiete 8
Phone: +49-(0)40-41 46 45 0
Facsimile: +49-(0)40-41 46 45 44