CHALLENGES IN RECOVERING LONG OVERDUE DEBTS
The duration of a debt’s existence is one of the crucial factors influencing the success rate of debt recovery. Generally, debts that have recently arisen tend to be more recoverable than long-overdue debts. Through this article, TNTP provides key business insights regarding recovering long overdue debts.
1. What is considered a long overdue debt?
A debt is considered overdue when the payment deadline has passed without settlement by the debtor. For newly incurred debts, all relevant documentation between the parties is typically well-maintained, facilitating reconciliation, verification, and tracking of the outstanding amount.
Conversely, debts that have been overdue for one year or more are generally considered long overdue. At this stage, locating relevant documentation for reconciliation, verification, and tracking becomes more challenging. Therefore, the optimal period for debt recovery is within one to three months following the initial due date.
2. Some effects on businesses when debts become long overdue
a. Difficulties in verifying and reconciling relevant documentation
When a debt remains outstanding for an extended period, businesses tend to archive the related documentation. In some instances, such documents may be misplaced or deteriorated over time. Consequently, when a business attempts to retrieve these records for debt verification, a significant amount of time and effort may be required for their recovery and organization.
If relevant documents are not properly maintained and become lost, debt recovery will be significantly challenging. The inability to substantiate the existence of the debt could prevent the creditor from asserting a claim for payment.
Moreover, if a business initiates legal proceedings against the debtor before a competent authority but lacks the necessary evidence to substantiate the debt, the court or relevant authority may issue an unfavorable judgment or ruling against the creditor. In some cases, the court may even dismiss the lawsuit due to insufficient documentation to support the claim for payment.
b. Debtor’s insolvency
In practice, debtors facing multiple substantial debts and financial distress often seek to delay or evade their payment obligations. By the time a business identifies a long-overdue debt, the debtor may already be insolvent and unable to meet its financial obligations. In such circumstances, not only does the creditor face difficulties in recovering the debt, but it also incurs additional costs, time, and resources in attempting to resolve the issue.
c. Expiration of the statute of limitations for legal action
According to Article 429 of the 2015 Civil Code, the statute of limitations for initiating legal proceedings regarding contractual disputes is three years from the date the claimant knew or should have known that their lawful rights and interests had been infringed. Additionally, Article 319 of the 2005 Commercial Law stipulates that the statute of limitations for filing a lawsuit in commercial disputes is two years from the date the claimant’s rights and interests were violated. Once the statute of limitations expires, creditors lose their legal right to file a lawsuit in court to recover the debt.
The issue of the statute of limitations for initiating legal proceedings against debtors, as well as key considerations in the litigation process, has been analyzed and discussed in a previous article by TNTP. For detailed information, readers may refer to the article at: https://tntplaw.vn/en/process-of-filing-a-lawsuit-against-debtors-in-court/
Allowing debts to remain outstanding beyond the applicable statute of limitations may result in creditors losing their right to seek legal recourse through the courts or commercial arbitration. Consequently, businesses must be mindful of statutory limitation periods under applicable laws to safeguard their legal rights and enhance the likelihood of recovering long-overdue debts.
The foregoing presents TNTP’s legal perspective on the “Challenges in recovering long overdue debts.” We hope this article provides valuable insights to help businesses expedite and improve the efficiency of their debt recovery efforts.
Best regards,
TNTP & Associates International Law Firm
+84903503285
