How is debt recovery done?
Every loan carries certain risks, as few people can be 100% sure of the long-term financial stability. Although creditors carefully assess the solvency of potential customers and consumer credit is becoming more responsible, credit risk cannot be completely avoided. If you are in a difficult situation and cannot repay your loan on time, don’t worry! Remember that court-based debt recovery is the last mechanism used by the lender when other methods have proven ineffective. This article describes how to make debt repayment as flexible and friendly as possible to your situation. Read it and put it behind your ear!
Why do I have debts
The main trend in the consumer lending industry has been responsible borrowing for several years. Reliable lenders place responsible borrowing information on their websites, and provide guidelines that help potential borrowers to objectively evaluate their situation and credit needs. Following these recommendations can significantly reduce your credit risk, so every borrower should consider their ability to repay their loan on time before submitting their credit application. And yet, some loans are overdue, debts are breached, and debts arise despite responsible and thoughtful treatment. Why? Here are the most common reasons for debt:
- biased solvency assessment;
- sudden drop in income levels, for example due to job loss or illness.Debt is not a brother – if credit payments are delayed, the lender will apply penalties. As a result, the total loan amount only increases and repayment becomes more difficult.
3 options for debt cancellation
There are two simple rules to avoid debt recovery:
- Contact the lender as soon as you realize that the loan payments are too high for your budget;
- Be open and inform the lender of your current solvency level.
The sooner a lender is aware of your financial difficulties, the better solution they will be able to offer. Depending on your outstanding loan amount, repayment term and your solvency, you may be offered:
- credit extension or credit vacation. A simpler solution for relatively easy situations. If you are short of cash on a loan payment in one month due to high unexpected expenses, but rest assured that your salary situation will change, extending your loan term may be convenient. The loan extension fee is charged depending on the loan amount;
- payment schedule restructuring. The lender may reduce the monthly payments and extend the repayment term to reduce credit payments. The smaller the overdue amount, the better restructuring can be expected, so always inform the creditor in good time about your financial difficulties.
- It should be noted that schedule restructuring and credit refinancing are not the same. If you already have debts, the situation is less favorable and should be dealt with by the lender. But if the credit obligation has not yet been breached, you may consider refinancing the loan with another institution. In this case, another creditor issues the amount needed to repay existing loans at a lower interest rate and longer maturity. Credit refinancing is especially handy for borrowers with multiple loans, and in many cases helps to maintain a positive credit history.
If you are keeping a close eye on your financial situation and are planning a family budget every month, you are unlikely to be threatened with legal recovery. But if the lender has turned to baills, the information we have prepared will definitely be useful to you!
How is the enforcement of the debt enforced?
If the loan is not repaid on time and the borrower has not contacted the creditor and ignored its reports, the lender has the right to initiate the debt recovery process independently. Debt collection can take two forms, either through the courts or through private debt collection companies. If the creditor has decided to go to court, the debt is recovered according to the following scheme:
- the creditor submits an application to the court stating that he wants to start recovery from the debtor;
- a court hearing is held, as a result of which the judge announces the decision to recover the debt;
- baills whose job it is to enforce a court decision are employed.
What exactly baills can do to recover a debt is governed by the baills Act. It states that:
- first, baills send a letter to the debtor requesting voluntary repayment of the credit and other debts, such as accrued fines;
- if the borrower ignores this invitation, the baills start to enforce the debt by directing the borrower’s property and existing funds in the bank account.
3 types of debt recovery
Baills have the right to obtain information about the debtor’s movable and immovable property from banks. Most baills choose to collect debts:
- barring the debtor from dealing in movable and immovable property;
- directing debt collection to wages;
- by directing debt collection to the funds in the bank account.
Wage deductions, like bank account deductions, are made by the debtor’s employer and the bank, not by the baills. The law stipulates that after deductions the debtor is entitled to a monthly minimum wage (USD 430 from January 1, 2018), as well as a maintenance allowance for minors (USD 64.03). If the debtor has a low income and wants a lower amount of withholding, the petitioner should apply to the creditor rather than the baills.
Judicial debt recovery is not the most enjoyable process, but it is within the law. Remember that every debtor has not only obligations but also rights, so take the time to study the relevant law. As a reminder, timely refinancing of a loan avoids debt build-up, but responsible borrowing is an indispensable condition for any loan!