Collection of debts owed from clients


1. Unsettled debts

First of all, let’s clarify some key concepts.

1. "Unsettled debt" occurs when the debtor is in delay

2. "Delay" occurs when:

  • the contract provides for a specific date for a debt to be paid ("maturity");
  • the contract provides for a period of time after which the debt must be paid ("time limit");
  • neither the maturity nor the time limit is stipulated in the contract – in this case, the debtor must be given adequate time to perform, after which he is deemed to be in delay. Providing an appropriate deadline for performance is by a notice of default.

3. "Insolvency"- according to the Commercial Law

Under the Commercial Law, "insolvent" is a trader who is unable to settle its executable debts under the law. The law introduces three hypotheses (three rebuttable presumptions of insolvency) where the trader is presumed to be insolvent: the trader is presumed not to be unable to settle its executable debt if, before filing an application for the opening of insolvency proceedings, it has not filed its annual financial statements in the Commercial Register for the last three years; insolvency is presumed when the debtor has stopped payments; suspension of payments also occurs when the debtor has paid in full or in part its debt to certain creditors; the insolvency is presumed if, in an enforcement proceeding initiated for the enforcement of an effective act of the creditor who has filed for insolvency proceedings, the debt has remained wholly or partially unsettled within 6 months of receipt of the notice of default or the notice of voluntary performance.

Voluntary settlement of debtor relations

Where the debtor is in good faith, it is advisable to settle the relationship by rescheduling and deferment, and in some cases where the debtor has the option to pay only part of its debt – by waiving part of the debt (for example interest, penalties, expenses, part of the principal)

For the effective collection of debts it is very important to maintain constant communication with the debtor.

Most often debtors are afraid that their creditor may take actions that lead to:

  • attachment to bank accounts and other receivables;
  • early repayment of loans, including mortgage loans;
  • restricting access to bank lending;
  • damaged reputation among customers;
  • assignment (transfer) of their debt to third parties, including to "collection agencies";
  • distraint and sale of property, including movable property, at their home, office or business premises.

The first steps that need to be taken before proceeding to debt collection are:

1. Inspection of debtor's assets and solvency by all available means:

  • through publicly available sources – at the Registry Office (for property), in the Commercial Register (for attachment of company shares, insolvency, Annual Financial Statements); on the NRA's website (for public debts); in the register of debtors of CPEA; in the Central Registry of Special Pledges; other searches on the Internet;
  • through informal and unofficial sources of information – clients and partners of the debtor, his associates, employees, etc.

It should be borne in mind that some debtors use the talks and negotiations with their creditor as a way of delaying the actions for enforcing the debt and obtaining an extension in order to dispose of with their assets at that time. In this sense, it is very important to make a proper judgment about the debtor's good faith.

  • in voluntary collection, this can be done by: telephone calls, personal meetings and the conclusion of a deferral or rescheduling agreement preferably by notary certification of the signature; repayment of the debt by vesting rights in property instead of repayment (for example, by vesting rights over a commodity which in value covers the amount of the debt); transfer (assignment) of the debt to a third party in return for a certain price, etc.
  • in case of voluntary securing of the debt it is possible to do this by: providing a bank guarantee by the debtor; the conclusion of a personal guarantee by the debtor; incurring debt by third parties; signing a promissory note; the creation of a pledge and/or a mortgage.
  • in case of compulsory securing of the debt it is possible to do so by: attachment, foreclosure or other appropriate measures on the basis of a court order issued by the court.
  • in the case of enforced collection of the debt, it is possible to do so through: legal proceedings and enforcement proceedings.
Publication author:

Tsvetan Terziyski

Director legal services

Securing claims for future effective collection

For the sake of clarity, we generally mention the types of collateral and injunction:

  • Mortgage – created on real estate or ships;
  • Pledge – created on movables and receivables.
  • Foreclosure and attachment. Foreclosure is imposed on immovable property, while attachment is imposed on movable property, receivables, securities, stock and shares, title over industrial property of the debtor (trademark, patent, utility model, industrial design, integrated circuit topology, certificate of plant variety and animal breed)

Legal proceedings

1. Proceedings by court order

With proceedings by court order the creditor files a standard application with the court, stating that the debtor owes a certain amount. The court issues a document called "enforcement order". Enforcement orders are divided into the so-called "ordinary" and the immediate execution orders. Regardless of the type of enforcement order, it is served (in the case of the "ordinary" enforcement order – by the court, and in the case of an order of immediate enforcement – by the enforcement agent) to the debtor, and the debtor can object to it within a 2-week period. If the debtor does not object, the enforcement order enters into force. However, if the debtor objects, the creditor must bring a claim within one month and provide evidence to the order of the court for the claim. The law also provides for one exception – when the debtor has paid its debt within the 2-week period for voluntary execution, then the regime for filing an objection, the effect of the objection and the procedural order of protection are different. The writ of execution is issued on the basis of the enforcement order (in the case of the "ordinary" enforcement order – after the enforcement order enters into force, and in the case of an immediate execution order – after the enforcement order was issued and before the entry into force). As a means of defending the debtor in a writ of execution issued on the basis of an order for immediate execution (in an order for immediate execution), the debtor has the possibility to appeal against the order for immediate execution.

Proceedings by court order are always recommended when speed is desired and when the prerequisites provided by the law are in place. It is also important to assess whether: the debtor is solvent and whether there is a risk for it to alienate its property; the debtor resides at the address where its seat is and therefore will not object; we have reason to believe that the debtor will not object.

2. Proceedings for securing a claim (by apprehension, foreclosure or other measures).


In these proceedings, an application is made to the court to allow a future claim or a pending claim be secured by way of attachment, foreclosure or other measures.


3. Action proceedings


This is a classical lawsuit in which the action is brought before the court of the defendant's seat. Claims up to BGN 25 000 are filed before the respective regional court and over BGN 25 000 before the respective district court. The proceedings are three-instance, but the decision of the second instance is enforceable even if appealed to the Supreme Court of Cassation (SCC).


 4. Insolvency

Insolvency proceedings occur when the trader is insolvent or over-indebted. This is a universal enforcement action involving all creditors of the debtor by redeeming the debtor's entire seizable property. The body of enforcement is the syndic (assignee in bankruptcy), and the court controls the entire proceedings.


Enforcement proceedings under the Civil Procedure Code


A case is instituted on the basis of a writ of execution or other enforcement act (for example, a certificate from an enforcement agent that the writ of execution is joined to another enforcement case). The proceedings are carried out by a private or state enforcement agent, who sends a notice for voluntary execution, imposes distraints and foreclosures, carries out an inventory and sells property, performs enforcement on the debtor's claims and title over industrial property of the debtor (title over trademark, patent, utility model, industrial design, integrated circuit topology, certificate of plant variety and animal breed) and, upon receipt of amounts in the course of enforcement, transfers the collected amounts of money of the creditors based of their preference.

Enforcement under the Registered Pledges Act (RPA)


In order to be able to proceed with the procedure under the RPA, it is necessary to have a special pledge created in your favor.

In this case, enforced collection of your debt could be made faster, cheaper and without the involvement of a court, except in cases where the possibility of appealing certain actions is envisioned in the law.

Practical recommendations on debt collection

1. The faster the action is taken to collect the claim, the greater the chance it is to collect it. The biggest chance to collect the claim will be within 3 months of the delay, and collectibility will then fall sharply unless a security (pledge or mortgage) is created that adequately secures your claim.

2. The voluntary way of settling debts is always preferable to the enforced one as it saves time, expenses and stress. In this case, the following legal principle applies: "The worst agreement is better than the best lawsuit (the best dispute)".

3. In any case, the written contract is preferable to the oral. The proof of the essential elements of the oral contract (price, terms and subject) is always difficult in the absence of a written contract. In itself, the invoice is not a written contract and does not prove the debt.

4. In the case of contracts for the delivery of goods and/or services, always compile acceptance protocols signed by authorized representatives of the parties.

5. The partial invoice payment is a proof that the debtor recognizes the debt, so it is advisable you always accept a partial payment even if it is minimal.

6. The contract must always contain specific, clear and unambiguous clauses, in particular on the subject, performance, price, manner and timing of payment.

7. When entering into a rescheduled or deferred payment agreement, you should insist that it be signed before a Notary Public.

8. Claim security for your future claim.

9. Set up enforcement actions only with enforcement agents you know who you trust and/or who are well-known as professionals.

10. Use a lawyer who has the necessary legal knowledge, experience and competence in the field of various civil proceedings.

11. Do not stop searching any type of communication with the debtor.

12. Collect as much information as possible about the debtor's assets and liabilities to other creditors, including the NRA.

13. And most important: Only work with honest and bona fide clients you trust, because every current client is a potential future debtor.


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