The civil courts in Germany offer an effective and relatively fast procedure for collecting monetary claims arising from business relationships. The following article answers some typical questions of creditors recovering debts by litigation in Germany.
Does the creditor need to inform the debtor before hiring a lawyer?
If it was appropriate and necessary to engage a lawyer, the debtor has to reimburse the creditor for his lawyer's fees. Therefore, before hiring a lawyer the creditor should make sure that the debtor is really unwilling to pay its debts. For this, usually it suffices for the creditor to have sent a payment request to the debtor. The creditor should be able to prove that the payment request has reached the debtor.
A payment request ensures that the debtor did not merely "overlook" the obligation to pay. Shortly after, the creditor can appoint a lawyer whose legal fees have to be paid by the debtor. The fees of the lawyer are to be calculated according to the Lawyer’s Fees Act.
When should the creditor go to the lawyer at the latest?
The statutory limitation period is usually three years after the end of the year in which the monetary claim arose. For example, if a creditor’s claim became due on 01.01.2018, the limitation period expires on 31.12.2021.
However, creditors should not wait until the end of the limitation period. A lawyer can be engaged as soon as the debtor does not respond to a payment request. If the creditor waits too long, the financial situation of the debtor might become worse. Shortly before the expiration of the statutory limitation period, immediate legal action should be taken.
What if the debtor is insolvent?
If the solvency of the debtor is doubtful, there is a risk that the creditor will be unable to recover its debts and the costs of litigation (lawyer fees, court fees, any additional charges). Therefore, it is important to carry out a brief financial check of the business partner already when concluding a contract; in the case of long-term contractual relationships such examination should be carried out at regular intervals.
It is usually too late to check the solvency of the debtor when a payment is already overdue. At the most, creditors can save the costs of debt collection. However, in most cases it is advisable to obtain a legal title by litigation irrespective of the financial situation of the debtor.
What shall the creditor prepare when hiring a lawyer for debt collection?
The creditor should give the lawyer a detailed documentation of the facts from which the claim of the creditor derives. The documentation usually includes contracts, transfer protocols, payment documents, invoices, and supplementary correspondence (also by e-mail). If the debtor has already raised objections against the claim, it is also advisable to inform the lawyer so that he may take them into account when preparing the debt collection procedure.
For debt collection in Germany, lawyers usually do not send an engagement letter, or fee agreement. The engagement of the lawyer is implied by the hand-over of the documentation. Fees are charged according to the Lawyer’s Fees Act. Many lawyers will send an advance note of the fees along with a power of attorney to the client before any action is taken.
Are English-language documents admissible as evidence in court proceedings in Germany?
The official language before German civil courts is German. If documents are submitted in English as evidence, they should normally be translated. If the exact content of the document is relevant, or there are doubts as to the correctness of the translation, a court-authorized translator should prepare the translation.
At present (March 2018), a bill is in the parliament (Bundestag), according to which the district courts are to introduce court chambers that negotiate in English. In the future, it may well be that English language can be used in front of district courts in Germany.
How long does it take to collect a debt?
The exact duration of a legal procedure to recover debts is difficult to predict.
The lawyer will often send a strong warning letter to the debtor before initiating legal action in court. When it comes to more complex topics and higher sums, the lawyer might attempt first to settle the matter out of court, e.g. concluding a payment schedule with the debtor. For smaller claims against private persons, the legal proceedings are often initiated by a dunning procedure in court (gerichtliches Mahnverfahren).
The actual duration of the legal proceedings in court at first instance usually lasts between 6 and 12 months. If it is necessary to hear witnesses, this might even take longer. Depending on the complexity of the matter, there might be appeals and procedures of higher instance, which can last several years.
If, after successful completion of the litigation procedure, the debtor still does not pay the debt, an enforcement procedure regarding the legal title (judgement) takes place. Enforcement measures include seizure of all sorts of assets, including bank accounts and real estate.
Are the German courts fair and incorruptible?
When it is "only" about collecting outstanding debts, the courts in Germany are free from any political interference; I have always found courts in business matters to be particularly fair and neutral.
However, it should not be concealed that the judiciary in Germany does not always understand business relationships. This can be overcome by more detailed explanations in the written pleadings to the court.
Furthermore, judges are only human and humans make mistakes. The German court system has the weakness that not all potential mistakes by a court are subject of control by another instance. That means, if the court makes a mistake, it is extremely difficult to reverse a decision by legal remedies.