24.04.2023

Collection of debts in Germany

The most important part of a lawyer's task is the collection of debts and liabilities in the relationship with debtors in Germany or with the customer's outstanding demands, if the German lawyer works for a private corporation. The creditor to debtor relationship often starts with an intake agreement where the lawyer gets to know the problems of his client, develops the facts of the debt collection, investigates where the debtor lives, increases the client's expectations, begins to develop strategies for claims and explains the methods of legal action to the client.
Debt recovery in Germany In Germany, only solicitors were in direct contact with the debtor. The creditor did not retain a lawyer if this was necessary and he acts as a solicitor between the customer and the client. In most cases the debtor would be obliged, under the German law, to accept payments for a certain case in a country in which he helds himselve out as escaping, at any German city at which he normally remains or resides for effectuating the collecting of debts by lawyers in Germany.

German debtor

The term "debt collection in Germany" is usually applied to lawyers, called such because they were a party to the original contract. At a second step, also law firms have the permission to collect debts, but the creditor assigns his accounts directly to a lawyer in Hamburg on a fee-free basis, which usually costs nothing to the creditor, except for the court costs. This however is independent on the individual legal service agreement that exists between the creditor, the debtor in Germany and the collection agency.
The advocate is not allowed to take a percentage of debts successfully collected; this equals a Pot Fee or potential fee upon a successful recovery of zero. This does necessarily have to be upon the collection of a full balance; very often the fee must be paid by the debtor if he reaches recovering efforts when the debt is collected. The German collection agency earns money only if the debt is collected from the debtor. Depending on the type of account, the age of the debt and how many attempts have been made to collect on it, the lawyer's fee will always be less.

Collection of receivables and liabilities in Germany

Collection agency in Germany

Not only debt purchasers who purchase sizable portfolios will utilize a lawyer to assist in managing their outstanding demands across multiple collection methods. Given the time-sensitive nature of the assets, many in the debt collections industry think there is a competitive advantage in utilizing the immediat collection technique as it gives the creditor more control and flexibility to maximize the collections. Lawyers in Germany offer legal help and a flat fee collection service. This service sends a series of written reminders, usually fourteen days apart, instructing debtors to pay the amount immediatly and directly to the creditor's lawyer or risk a collection action and later on a court procedure. Depending on the terms of the contract, the accounts may revert to a kind of hard collection status at the lawyer's regular rates if the customer does not react or respond.
The usual form of a scheme of arrangement is an assignment by the debtor of his property (or a part of it) to a trustee for distribution of the proceeds of sale among the creditors, rateably or in agreed proportions. The first step for a debtor who wishes to make a composition or scheme of arrangement of his affairs is to apply to the local court for an interim order. This order has the effect of preventing a bankruptcy petition from being presented. In his application the debtor must state that he proposes to make a voluntary arrangement and he must name a nominee (an insolvency practitioner) and he has to present all open and unpaid invoices. Within 14 days the latter must submit a report to the court stating whether a meeting of the debtor‘s creditors should be called to consider the proposal.
Upon receipt of this report, if satisfied that such a meeting should be held, the court will direct that the interim order be extended for a specified period of billing to the German client. Thereafter the nominee must summon the meeting. The chairman of the meeting must report its deliberations to the German court and, assuming that the court approves the proposal, every creditor who had notice of the fast encashment and was entitled to vote is bound by the arrangement whether or not he attended the meeting or voted in favour of the proposal. After the report to the court the order continues in being for a further 28 days. This is to allow the arrangement to be challenged by the debtor, any creditor entitled to vote, the counsel, or (where the debtor is a bankrupt) the trustee of his state or the official receiver of goods within the legal situation in Germany.
After the 28 days no challenge is allowed. If the challenge is successful the period of the collection order will be extended. If there is no challenge, or the cashing is unsuccessful, after the 28 days the arrangement becomes binding and it is then for the client in Germany (thereafter known as a ‘German debtor‘) to assume responsibility for the implementation of the arrangement. All voluntary arrangements have to be registered in a register of individual voluntary agreements maintained by the Secretary of State.
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