Filing claims before a court of law is neither easy nor pleasant. It is obvious for everyone who has participated in any proceedings. On average, recovering a debt in a court in our country lasts two years.
Another problem involves costs. Everybody who decides to file a petition to the court of law has to take costs into account. The comprise fees for petition filing and costs of legal representation. These are considerable expenses.
Professional debt collectors underline that recovering debts outside the court is not only quicker but also cheaper. If you want to recover your money amicably, and – at the same time – you do not want to expose yourself to loss of money, statute of limitation on debt or lack of good will on part of your debtor, sign a settlement with the debtor!
According to definition: an out-of-court settlement is a contract concluded between the parties which shall make reciprocal concessions within the scope of the legal relation existing between them for the purpose of setting aside uncertainty as to the claims arising from that relation or ensuring their performance or setting aside a dispute which exists or which might arise (Article 917 of the Civil Code). The aim of settlement is to resolve a dispute without initiating court proceedings.
If you agree a convenient repayment schedule with your debtor that he or she will follow, they will repay the debt quicker than in case of an order for payment issued by the court. This way, you will save time and money. Settlement can be concluded only when both parties show their good will. However, if a debtor does not meet the fixed deadlines for repayments, despite having concluded a settlement, such document will be treated by a court as debt acknowledgement, and it will considerably facilitate acquisition of a legally valid order for payment.
Additionally, a settlement may contain an acknowledgement of debt clause.
How to draw up a settlement contract?
A civil and legal settlement contract should provide for the following:
- determination of the place and date of settlement conclusion – it may be important for the obligation of the parties resulting from the mere content of the settlement
- determination of the parties to the settlement and their representatives, if applicable
- determination of the legal relationship settlements refers to
- indication of the amount of settlement and documents that serve as evidence
- the way of meeting the obligation (debt repayment), e.g. repayment schedule or determination of the deadline by which the obligation should be met, also with regard to the form of such repayment, i.e. by stating a bank account, on which repayments shall be made
- other concessions on part of the creditor, e.g. when a creditor renounces claiming interest
- performance bond concerning the settlement on part of the debtor – it is not a prerequisite, but may prove useful in case the debtor did not meet the terms of settlement
Performance bond may take the following form:
– establishment of a mortgage or registration pledge in favour of the creditor to the amount stipulated in the settlement contract
– signing a contract on the transfer of ownership with the debtor to secure a specific asset or a blank promissory note
- final provisions, such as choice of governing law, choice of the court of law, manner of amending the contract, number of copies and possible manner of notifying the creditor about settlement contract performance by the debtor
Is is advisable to include in the settlement contract a waiver on part of the debtor who waives charges against the creditor and debtor’s statement that the goods delivered or service provided have been compliant with the contract. These will be helpful in case when court proceedings were initiated because the settlement contract had not been performed. A clause protecting the debtor will be the statements that the concluded settlement fully satisfies all creditor’s claims that result from the specific legal relationship.
Conclusion of a settlement contract interrupts the statute of limitation period. On the other hand, a settlement contract may also concerning overdue claims, if the parties are business partners and remain in good faith. A free sample settlement contract may be downloaded from various web sites. Assistance of a lawyer will considerably facilitate formulation of precise and effective provisions.
Published on: 14 November 2016