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Debt Epidemic – How to protect yourself against it?

The infamous debt collection is a notion that haunts many entrepreneurs, particularly throughout recession, such as the one that we witness nowadays. This is, however, far from being death sentence for our company, and if we know our rights – we might defend ourselves and make use of this procedure to regain control over our money and get rid of debts swiftly.

Bailiff or just a debt collector?

Many people treat both of these professions equally, fearing that a letter from debt collector may have subsequent consequences of seizure of their funds or entry to an office of the company. On the contrary, these two professions are radically different and do not share the same range of tools available to enforce debts. Competences wrongly associated with debt collection are in fact elements of bailiff enforcement, which may be used only by the bailiff and only in a manner strictly regulated by civil law procedures. A real bailiff in Poland never acts on his own or on behalf of private company, as these are in fact officials attached to a district court. What can a debt collector legally undertake, then?

In fact – nothing. The collectors are in no way particular officials and they can rightfully do as much, as any creditor could do on his own. Therefore, they cannot seize our funds, enter our property without our consent or require any information on our financial situation. Any of such actions may in fact be considered crimes, as long as they are not performed by a bailiff on a basis of a proper enforcement order. They may and should be reported to the Police. Which abuses are most common in debt collection?

  • forced entry to debtor’s house without his explicit consent – this behaviour is considered a crime, as laid out in Article 193 of Polish penal code (k.k., kodeks karny) – an intrusion upon seclusion,
  • threats of penal procedure and subsequent bailiff enforcement – this is not only absurd, as debts are most commonly a case for civil, not penal courts, but also illegal, as it be may considered a use of violence or illegal threatening with a purpose of debt collection, as described in Article 191 §2 k.k.,
  • the same article forbids any kind of physical violence in debt collection. Additionally, violence may also constitute an infringement of Article 271 §1 k.k., i.e. violation of physical integrity. Additionally, serious cases may result in personal injury, as regulated by Article 157 k.k.,
  • violation of physical integrity may also occur during forced eviction, to which debt collectors have no rights whatsoever,
  • any attempts or threats of seizure of funds located on bank accounts or seizure of pension or salary are completely out of place, have no legal grounds and may constitute a fraud, penalised by Article 286 §1 k.k.,
  • debt collectors cannot order us to give them any of our belongings or our money – this may constitute either an attempt of theft (Article 278 k.k.) or extortion (Article 282 k.k.)
  • the collectors have no right to inform debtor’s family or employer on his debt – this may lead to accusations of stalking (Article 190a k. k.) or defamation (Article 212 k.k.).

All actions listed above may also serve as a basis for compensation or punitive damage, if the illegal debt collection resulted in material damage, for example if a car is damaged during a seizure attempt, or if it leads to intangible losses, such as stress resulting from stalking. Paragraphs of penal code mentioned above may prove extremely useful in a dispute with an aggressive debt collector. If he acts persistently regardless of our legal arguments, it might be necessary to call the police to bring the unlawful debt collection to a halt. If the collector does commit anything from the list above, it would be fully appropriate to inform either the Police or relevant prosecutor office about a crime. The most proven and safe method is to submit a notification of a crime in the nearest police station. In case of some crimes, such as stalking, police or other organs may undertake proceeding if the victim files for such proceeding in so-called application for prosecution. A police officer reporting a crime should inform us in due time, that the application is necessary in the case in question.

Our readers may wonder at this point, what exactly is a debt collector allowed to do, if pretty much everything is either available only to bailiffs or forbidden altogether? In fact, the principal activity of such collector is negotiation. It is perfectly legal for collectors to contact their debtors and negotiate repayment of the debt in tranches or reduction of debt in exchange for instant repayment. Even the negotiation may however turn illegal, as soon as it becomes stalking, or more precisely a crime of repetitive, persistent harassment, as mentioned above. Such discussions with debt collectors may also be an opportunity to extort our private data. In general, however, the negotiations may bring positive results both for debtors and creditors, allowing the debtor to get rid of his old commitments quickly and rather cheaply, without bearing the costs of court procedures and actual bailiff enforcement. In order to succeed in negotiations, we must have some knowledge on our debts – most importantly, we should check if they are not expired.

Expiration – a debtor’s secret weapon

Many debts collected and enforced by private companies were either never brought to court, or were in fact stated in court decision, but such decision has never been successfully enforced. Such debts are often expired, and private companies try to collect them mostly by relying on confusion and lack of legal knowledge of debtors. No debt collector will ever help us realize, that the debt he tries to secure is in fact too old to be enforced. That is why we should make a quick revision of law on debt expiration.

Back in 2018 we witnessed a major amendment of relevant provisions. Since then, the maximum period of expiration is only 6 years, compared to 10 years regulated before 2018. The 6-year-period applies to majority of claims, including the claims confirmed by decisions of courts, arbitration courts, or any other body able to conduct such proceeding, as well as to claims established in a settlement confirmed by court or arbitration court, or in a settlement established by mediator, subsequently confirmed by court. Expiration period has not changed with regards to periodic payments, such as loan payments, as well as payment related to business activity, and still lasts 3 years. Additionally, the expiration does not occur exactly 6 years after the claim has arisen, but on 31st December of the year in which the 6-year period passes. Realistically, many claims may expire after almost 7 years, such as claims related to contracts concluded in January.

Temporary norms on expiration are extremely complicated. If a claim has not expired before 9th July 2018, we must compare how it should expire according to old, 10-year limit, to how it should expire in accordance with new regulations, with expiration period counted since 9th July 2018. In short – we must check if the old regulation caused an expiration before 31st December 2024. The sooner of the two dates in comparison must be applied.

Keep in mind, however, that the civil code provides a list of events that lead to cessation or pause of the termination period, completely altering the debtor’s situation. In practice, cessation of expiration is particularly important, as it may be caused by any action in the court or any other organ competent in the dispute in question, including an arbitration court, which aims directly at confirmation or pursuing of a dispute, as well as by initiation of mediation or by recognition of the claim by the debtor. Negotiations with debt collectors are in no way an ‘official’ mediation, but in the process of negotiations it may be easy to recognize the claim involuntarily. This might have disastrous consequences, especially if the claim in question is close to expiration. In case of cessation, regardless of its reason, the expiration period starts anew.

How does the expiration benefit debtors? Most importantly, it gives a sense of financial security and stability, as the creditor will have no possibility to enforce debt collection by legal means. If the claim was not brought to court yet, the claim will be easily dismissed in case of court proceeding only because of its expiration. Even if the expired claim is confirmed by court, and even if it is supported with an enforcement order, the bailiff will still lack legal grounds to undertake debt enforcement. This is a serious argument that may lead creditors and debt collectors to reduce the disputed amount drastically, thus making it easier to erase the debt. On the other hand, even the expired debts may be listed in registries, such as National Debt Registry (Krajowy Rejestr Długów, KRD) or BIG InfoMonitor. Such negative entries in registry are a powerful weapon of debt collectors, as they may prove problematic for debtors attempting to obtain a bank loan, leasing, or any kind of instalment purchase. Even if entries relate to old, radically expired debts, the only way to get rid of them is to achieve an agreement with debt collectors. There is no legal requirement for such registries to remove expired debts – conversely, removal of entry depends solely on the creditor.

One good reason to check your mail

If the negotiations fail, we may expect the debt collector to bring the case to the court. Many people still believe in a theory, that one can easily avoid any court proceedings against him, if one simply avoids acceptance of any court correspondence. Such theory is nowadays nothing more than an empty urban legend, which may prove detrimental especially in case of dispute with debt collectors. This is because such companies often make use of a lawsuit combined with a motion to issue a payment order against a debtor. This is a perfect, delightfully simple method for a creditor to fight for his claims, as the payment order requires nothing more than the most basic documents, such as an invoice accepted by the debtor or a contract. The debtor is not informed about the proceeding against him in the course of proceeding – the first mail that he will receive will be the payment order itself. Luckily, just as it is simple to get the payment order issued, it is easy to overturn it. This requires only a simple act of objection. The objection must be filed within 14 days after the payment order is received. Hiding away from a mailman will not solve anything – we must actively object the order. The objection results in a standard court proceeding, including a classic hearing during which we will be able to secure our rights. This is particularly important, as the payment orders are often issued almost automatically and may relate to debts already expired or repaid. Such claims may be easily rejected in the court, but the success depends on the first step of the creditor – receiving of his mail.

All bark and no bite?

After our summary, the debt collection should not seem as scary and deadly effective as it would seem at first glance. Debt collectors are just ordinary businessmen or workers with no special powers, and even though contact with them might prove beneficial, we cannot forget throughout the negotiations, that the other side has no major advantage over us. The debt collectors tend to rely on confusion and lack of legal knowledge of debtors, so the best way to win is to be aware of one’s own debts, as well as of one’s rights and duties.

Author: Filip Walczak
07.10.2020