There are two routes to recover a debt in Italy: via extrajudicial route, without the need to go to court, and via judicial route through the court.
When the extrajudicial and the Judicial routes can be necessarily taken into consideration?
Debt collection is that activity carried out for the purpose of obtaining payment (whether totally or partially) of the debt from the debtor.
The purpose of legal action is to ensure the recovery of funds owed within a reasonable period of time, seeking, where possible, to avoid the increased costs and time associated with resolving the dispute through the court system.
Involving a lawyer can also prove decisive in an out-of-court procedure, that is, in a debt collection action that does not involve a judge.
Extrajudicial debt collection in Italy
The out-of-court debt collection procedure in Italy is the first step.
The purpose of this step is to invite the debtor to regularize his position amicably. This is an extremely important step because this, in many cases, allows the problem to be resolved without the need to go to court. Hence, it saves time and money because it avoids having to resort to judicial recovery of the debt.
How is the out-of-court debt collection carried out?
The first step is to gather all the necessary information (due diligence): what the claim is based on, whether there is a contract or written agreement between the parties, invoices, checks or bills of exchange etc.
Based on the information gathered, a warning letter is sent inviting the debtor to rectify his or her position within a certain period.
The purpose of this letter is to ascertain whether the debtor is willing to pay what is due or whether there are any objections on his part.
The default notice has important consequences: it interrupts the statute of limitations on the claim and determines the beginning of the running of default interest.
The notice of default can often prove decisive if the recipient realizes that continuing not to pay could indeed lead to counterproductive legal consequences.
If the debtor agrees to pay, a written and binding agreement is drawn up between the parties.
If the debtor refuses to pay or disputes the claim and an agreement cannot be found, it will be necessary to resort to one of the Adr, legal dispute resolution tools, alternative to going to court or, depending on the specific case, go to the court itself, initiating the so-called judicial phase.
In order to recover a debt, it may prove useful and profitable to make use of assisted negotiation (ADR).
In Italy, Law 162 of 2014 (Article 3) stipulates that, before proceeding in court before the judicial forums provided by our system, it is mandatory to attempt the assisted negotiation procedure for any “claim for payment on any grounds of sums not exceeding fifty thousand euros.” On pain of the declaration of improperness of the judgment that may have been instituted.
It starts with an invitation to proceed through assisted negotiation.
“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 settling court costs and the provisions of Articles 96 (aggravated liability for bad faith or gross negligence) and 642 first paragraph (provisional enforcement of injunction) of the Code of Civil Procedure.”
Debt collection in Italy by judicial process
Before initiating court proceedings against the debtor, it is advisable to check the debtor’s solvency status, that is, to verify whether he can meet his obligations from an economic point of view.
We will, first of all, conduct research on the debtor’s economic, financial and asset capabilities: whether he owns real estate or registered movable property (motor vehicles, motorcycles, boats etc.), whether he holds a salary or has a bank account.
This step is critical in order to initiate court action to ensure that there is a reasonable likelihood of success in the proceedings.
What types of court action can be taken?
This depends on the security on which the claim is based.
In the case of debt securities (checks or bills of exchange), this becomes due when it falls due.
In case of non-payment, the claim can be immediately enforced by a formal notice of payment and, if necessary, by an enforcement procedure, for instance, garnishment or seizure..etc, which leads to the forced sale of the debtor’s property.
In the case of claims that are not incorporated in the titles, but nevertheless supported by documentation (e.g. invoices, contracts …), it is possible to apply for the issuance of an injunction.
The injunctive decree is an order issued by the court based on the documentation submitted by the creditor, if it is deemed sufficient, and within a fairly short period of time.
Once the court issues the injunction, and if the legal requirements are met, the creditor must serve it on the debtor.
The latter will have 40 days to:
- object. In this case, ordinary proceedings are opened, which will end with a judgment confirming or revoking the decree.
If the debtor does not oppose and/or does not pay within the stipulated period, the creditor may initiate enforcement proceedings: precept, attachment, forced sale of assets, under the injunction decree.
In certain cases established by law, the court orders that the decree be immediately and provisionally enforceable.
In these cases, the creditor may proceed immediately, without having to wait the 40 days, to serve the writ and, if necessary, commence enforcement proceedings.
The debtor will still have 40 days to file an opposition. Any execution undertaken is provisional in nature.
Debt collection enforcement proceedings
Through this procedure the debtor is forcibly deprived of part of his property in order to satisfy the credit claim.
Preparatory to attachment is the formal notice of payment. This is a formal act by which the creditor enjoins, through a Bailiff, the payment of sums due.
The first act, therefore, is the precept, followed by the garnishment, which is done through the Bailiff.
The debtor has 10 days from the service of the precept to pay what is stated therein. Failing this, after 10 days have passed, the creditor can activate enforcement through garnishment.
There are different types of enforcement:
- Real estate execution: this involves the debtor’s real estate. These are attached and subjected to forced sale or assigned to the creditor.
- Movable execution: deals with the debtor’s movable property, which is also attached and forcibly sold or assigned to the creditor.
- Garnishment of registered movable property targets those assets subject to registration such as cars, motorcycles, boats etc.
- Third-party garnishment, by which those sums that a third party owes the debtor for any reason (salary, annuity, miscellaneous receivables) are attached. In this case, the enforcement procedure also involves the third party, who is in turn the debtor’s debtor.
In matters of debt collection, it is also very important to pay attention to the statute of limitations of the right.
If it took too much time from when the claim has become due to when the creditor takes action to recover it (with a letter of reminder or a specially drafted notice), there is a risk that older claims can no longer be collected because they are time-barred.
The statute of limitations for a claim varies depending on the type of claim and the title on which it is based.
Corporate Debt Collection
Small and medium-sized enterprises (SMEs) are widespread in Italy, a world in which recovering debts can be a reason for survival.
Delays or complete omissions in payments are frequent.
Invoices, although not paid, generate taxes, VAT and other expenses, which do not take into account non-payment.
Precisely because of the frequency of debt collection with which companies face, more practical and quicker solutions might be preferred, starting with recourse to arbitration, whose confidentiality features make it the ideal resolution tool for the needs of companies, both local and international.
Regarding debt collection in Italy, consideration must also be taken to those cases in which one of the parties to the dispute is resident abroad, a circumstance that would entail additional procedures for international debt collection.
The attorneys of Debt Collection Department within Boccadutri International Law Firm have the experience in debt collection in Italy and abroad, do not hesitate to contact us for an initial consultation.
Complete the form to request a legal consultation. Our experts will evaluate your case and suggest the best solution.