Proper Debt Collection Practice in Spain
Proper Debt Collection Practice in Spain
Business continuity and many individual livelihoods rely on the timely payment of debts. When payment is not forthcoming, the subsequent collection of debt by creditors is invariably subject to a highly constrained legal process. Manuel Hernández, managing partner of Vilches Abogados, answers our questions about the practice of debt collection in Spain and provides insight on proper conduct.
Could you provide an overview of the legal framework for debt collection in Spain?
Yes. I will begin by clarifying that, in Spain, the collection of a debit is a right that any person has, whether natural person, legal entity, or public or private entity, for the fact of having performed a service.
This person – the creditor – can request payment from the debtor out of court before taking the next stop and going to court. This is an amicable claim, as an action prior to going to court. Acting in this way is in a point in favour of the creditor, since it leaves a record that they have tried it orally; something that, for the judgment, favours them.
What are the main laws and regulations governing debt collection practices?
The legislation that protects those who suffer from delinquency, i.e. the non-payment of an amount by another, is the articles of the Civil Code. Two of them stand out in this area:
Article 1101 states that anyone who “incurs in fraud, negligence or default in the fulfillment of his obligations” from that moment has the responsibility to compensate for the damages caused.
In addition, and complementing the above, Article 1096 determines: “when what is be delivered is a specific thing, the creditor may require the debtor to make the delivery”.
With both, Spanish law gives full right to verbally request what is owed to you.
What are the typical phases of debt collection, from initial contract with the debtor to resolution?
When a person sets out to collect the amount owed to them, the first step is the recognition of the debt, they must prove that it exists. It is necessary to provide all the documentation you have, which gives veracity and solidity to your request. I am talking about contracts, emails, or messages by any other channel that show that the debt exists.
At this point it is possible to make a claim amicably, in the act of conciliation, where both parties meet and try to reach an agreement. In the worst case, if the debtor refuses, despite having evidence against them, you should go to court.
It is another thing if there is no evidence. Then it can get complicated. An out-of-court negotiation is required, where you must try to reach an agreement with the debtor to cancel the debt – something that is more difficult when there is no good will on both sides.
Are there any specific limitations or restrictions on debt collection practices that debt collectors should be aware of?
An essential thing to know is that debts are not reclaimable for life. There is a time limit after which, if the proceedings have not been initiated, all right to do so is lost, and I think this is the greatest restriction faced by the collectors.
In the case of personal contracts, such as a rental of real estate or a loan between two people, this term is five years. This has not always been the required term; this was established in 2015 via Law 49/9015, which modified the previous (much softer) term limit of 15 years. During those five years, the claim procedures must have been started. Once this happens, the term stops. In short, it is very difficult for that term to be met, and that debt is left unclaimed.
Further, each type of contract may have a limit period that is determined and accepted by the parties. This is the case with mortgage loans, for example, which have a claim term of 20 years.
What are the rights and protections that Spanish law grants debtors during the debt collection process?
Once the judicial proceeding has begun, the debtor has legal protection, which means that any possibility of seizure of assets to cancel what is owed is paralysed. In addition, you have the right to not have the debt continue to grow. Once the claim is already in process, interest no longer increases the debt already contracted, which is important in case the judicial process is delayed.
To respect the debtor’s right to privacy, any information concerning this subject cannot be disseminated without their consent.
How does the legal process of debt collection differ between consumer debts and business debts?
It does not differ too much. In fact, the steps to follow are the same as I mentioned before. You must claim business debts, in this case with the presentation of the invoice or invoices, where the due date is clearly shown. This makes it clear that the company is in breach of one of the conditions of the acceptance of the services, i.e. delivering the payment before a specific day.
If no news is received, the next step is to send a burofax requesting payment. It is important to use this means, because it justifies not only the content, but also the sender, addressee and date of sending – the best way to have a legal proof in court. At this point, if the company does not comply, you should take legal action.
What legal remedies are available to creditors when attempting to collect a debt?
Creditors, once they have proof of the debt owed to them, have all legal remedies in their favour. They have the right to file a judicial claim after going through a conciliation process to reach an agreement that we can call ‘amicable’, and that always benefits both parties.
Can you give us some insight into the negotiation and settlement typically employed in debt collection cases?
The first idea is more of a tip.
Before any service is provided, it is very important that, if it is not a contract signed by more parties, there is another type of justification of what has happened. Often – because it may be a family matter, or between friends – you think that nothing will go wrong, and with a conversation (without witnesses) you move on. This is a big mistake that, in the long run, has consequences.
Apart from that, it is important to negotiate with a certain flexibility, to take into account the situation of the other party and to try to reach an agreement, either through an alternative way of collection or an increase of the terms, for example.
You have to arrive at a negotiation with an idea of the worst scenario you can face, knowing how far you are capable of giving in, always with the idea that it is better to charge a little less or take a little longer than not to charge at all, or not at all.
About Manuel Hernández
Manuel Hernández is the managing partner of Vilches Abogados, a prestigious law firm in the city of Madrid. The firm boasts eight offices in Madrid and a staff of 21 lawyers, cementing Vilches Abogados as a leading law firm in the Spanish capital.
Manuel Hernández Vilches
Tel: +34 915 75 90 82