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Extrajudicial/Out-of-court Debt Collection in Italy

19 May 2023 - Debt Collection - Min Read 4 min
Extrajudicial/Out-of-court Debt Collection in Italy

Extrajudicial debt collection in Italy is that practice that allows an agreement to be reached without resorting to the intervention of a judge.

In many cases, for those who need to recover a debt, it is initially preferable to opt for an out-of-court action, if the conditions and prerequisites for agreement exist.

Extrajudicial debt recovery is the most advantageous solution, in terms of speed and cost, for claiming one’s debts.

In Italy, extrajudicial debt collection is governed by the Civil Code.

The intent of this activity is to resolve an irregular situation amicably, through reminders and agreements that induce the debtor to pay what is owed spontaneously.

This type of consensual approach to the debtor allows for the preservation of any pre-existing business relationship, which one does not want to do without anyway, and a settlement agreement can be reached, with due caution.

The Letter of Pre-action

A letter of pre-action is a letter of notice and reminder to pay by which the debtor is requested to pay the amount due immediately, giving a specific deadline by which payment must be received.

In addition to the letter of pre-action, assisted negotiation, which is mandatory in some cases, may be suggested.

If the debtor accepts to reach an agreeable solution following the letter of pre-action, the out-of-court debt collection practice ends with the settlement agreement.

If the debtor does not show willingness to make payment even after the out-of-court attempts, the creditor may take legal action to recover the debt in court.

It often happens that the letter of pre-action sent by a lawyer proves to be decisive, thanks to the credibility and persuasive force that a professional possesses.

What are the Main Out-of-Court Agreements?

The main out-of-court agreements in debt collection in Italy are:

  • Balance and excerpt: the creditor grants the debtor the payment of a lesser sum than the total amount, provided that this is paid in a single payment. This type of agreement can be transactional, if the new terms refer to the original business relationship, or innovative, if the first contract is cancelled and a new one is created to refer to.
  • Repayment plans: allow the creditor to recover the full amount, but by establishing a deferment of payment through installments.

Phases and Factors of Out-of-Court Debt Collection

To proceed with debt collection in Italy, several factors must be taken into account in order to implement the necessary steps that allow one to be clear about the convenience or the procedure.

  • Initial assessment: starting with the amount of the debt, the circumstances under which it accrued are determined. Also important is the initial due date for payment, the presence or absence of disputes, the presence or absence of recognition of the debt, the contractual and statute of limitations terms, and the competent court in case out-of-court action is not enough.
  • Study of the agreements between the parties: used to determine the possibility of either arbitration, or assisted negotiation.
  • Understanding of the debtor’s creditworthiness: based on a credit check or due diligence, i.e., an investigation of the debtor’s economic situation, one can better ascertain that there are no impediments to the satisfaction of the debt, and determine whether, in the event of subsequent legal action, there is a way to obtain the balance of the debt (e.g., the availability of assets that can be attacked in enforcement or attachment).
  • Sending letter of pre-action and/or possible letter of invitation to Assisted Negotiation. The letter of pre-action is used to warn the debtor that debt collection legal action may be taken against him or her.
  • Possible phone calls, letters, or e-mail reminders before deciding to move to the judicial stage.

Alternative Dispute Resolution (ADR) Techniques

Two Alternative Dispute Resolution (ADR) techniques are applicable to debt collection in Italy: arbitration and assisted negotiation.

The decision to use arbitration is normally made as early as at the contract stage, receivables being disposable property rights.

A so-called arbitration clause is signed, which states that in case of non-payment, arbitration will be used.

However, one may decide to rely on an arbitrator after a dispute has already begun, in which case a compromise is signed by which the dispute concerning the disputed claim is delegated to a third party.

With assisted negotiation, a procedure is activated by which the parties, assisted by their respective lawyers, cooperate to reach an agreement that avoids the introduction of litigation.

Such proceedings must necessarily be concluded within three months and the presence of at least two lawyers is required.

Among other things, we recall that the “failure to respond within 30 (thirty) days of receipt or refusal to enter into the assisted negotiation agreement may be assessed by the Judge for the purposes of the settlement of court costs and the provisions of Articles 96 (aggravated liability for bad faith or gross negligence) and 642 first paragraph (provisional enforcement of the injunction) of the Code of Civil Procedure.”

Our lawyers within the Debt Collection Department can assist businesses and individuals in Italy as well as abroad, please do not hesitate to contact us for an initial consultation in order to assess the conditions for extrajudicial acting.

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Calogero Boccadutri

Calogero Boccadutri is the Managing Partner of Boccadutri International Law Firm. He has trial experience in Forex, Personal Injury and Administrative litigation.

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