Protecting your rights with (aggressive) creditors


Protection against creditors is a vital issue for any undertaking, as in the event of improper or delayed protection, the entity may be left with no assets to operate with, and this could in turn lead to bankruptcy.

To collect the debt, creditors sometimes use means and methods that are unacceptable under the legislation of the Republic of Bulgaria and the acts of the European Union.

To avoid such a possibility, the best protection against creditors, including aggressive ones, includes the successive stages that are outlined below.

If you fail to protect yourself at any of the stages listed below, this in no way means that subsequent protection is not possible or pointless. On the contrary, the debtor has the right to defend himself at any time with the appropriate and exigible legal means, which can be decisive for the whole process.

Publication author:

Tsvetan Terziyski

Director legal services

1. Preventive measures before contracting a debt

It is always best when preventive measures are taken before contracting a debt. To this end, it is very important to check all the clauses of the contract that you about to conclude to see if it contains unfair, void clauses or clauses that could put the entity in a difficult situation in the future.

In general terms, an unfair clause is any arrangement that is not fair and creates an imbalance between the rights and obligations of the entity and the rights and obligations of the creditor to the detriment of the entity. This may be any arrangement that is detrimental to the enterprise and does not meet the requirement of morality and good faith, creating a significant imbalance between the rights and obligations of the creditor and the debtor.

Such are, for example, the clauses which: exempt from liability or limit the statutory liability of the creditor; exclude or restrict the debtor's statutory rights; make the performance of the creditor's obligations conditional upon a condition whose performance depends solely on its will; oblige the debtor, in default of his or her duties, to pay unjustifiably high compensation, interest or penalty; allow the creditor to release itself from its obligations under the contract at its discretion, while the same possibility is not given to the debtor; allow the creditor to terminate an open-ended contract without notice; allow the creditor to unilaterally modify the terms of the contract on the basis of an unforeseen reason; provide for the price to be fixed at the time of receipt of the goods or the provision of the service or entitle the creditor to increase the price without the debtor being entitled to withdraw from the contract if the final price is significantly increased; entitle the creditor to determine whether the good or service meets the conditions specified in the contract; require the debtor to perform its obligations even if the creditor fails to perform its obligations; exclude or impede the right to sue; unjustifiably restrict the evidence available to the debtor or impose on it the burden of proof which, according to the law, should be borne by the other party to the contract.

Void clauses are clauses of the contract that contradict or circumvent the law or morality, that have an impossible subject, and in which there is no agreement of one of the parties prescribed by the law form, ground, as well as the colourable contracts. Voidable clauses (this quality is established by court order) are the clauses in the contract concluded by a person without a representative power (without a valid power of attorney or by a person who is not a manager), as well as the contracts concluded in case of mistake, fraud, threats or extreme need.

The clauses that could put the entity into a difficult situation in the future are those contractual terms in the contract that, although not showing the defects listed above, may lead, due to their nature and the occurrence of conditions for their application, to unusual and extremely negative consequences or at least significantly impede subsequent defence. These conditions are usually strictly specific to each type of contract and therefore can not be covered in general terms.

3. Defense when court proceedings have already commenced

In proceedings initiated by the creditor to secure the claim (by attachment, foreclosure or other measures), the defense is through a complaint.

In the case of initiated proceedings, the defense is through an objection to the enforcement order. When an order for immediate execution and a writ of execution is issued, the defense is made through an objection and an appeal against the order for immediate execution, but this is done in the next phase described in Section IV below.

In the event of action proceedings: a reply must be given to the statement of claim providing all evidence and requested evidence (i.e. witnesses' inquiries, written documents, experts' reports), make all objections (regarding limitation period, set-off, exercised right of lien, termination or deferral terms in the contract, etc.). If a decision is not in our favor, this decision should be appealed within the prescribed term – the first instance decision before the appellate court (second instance) and the decision of the appellate court before the cassation instance (Supreme Court of Cassation).

2. Preventive measures of the debtor after contracting a debt, but before legal proceedings and enforcement actions have commenced

Even if a contract is concluded in which the rights and interests of the parties are equally and rightfully protected, when the debtor becomes incapable of performing its duties this will inevitably lead to a response and action by the creditor. That is why it is extremely important for the debtor to be protected at the very earliest moment in which a situation arises which may lead to action by the creditor against it, including legal action. When a debtor is experiencing financial difficulties, it is advisable to take preventive measures as early as possible. The sooner these measures are taken, the more likely they are to be successful and to achieve the desired goal of preserving the property and avoiding greater losses.

Unfortunately, it is not always possible to pay our debts on time – either because of unsuccessful transactions, or because of irregular payments on the part of our suppliers or because of other reasons that are within or beyond our control.

When it comes to the moment we understand that we will not be able to pay our debts in time, it is advisable, as a starting point, to start negotiations with the creditor. In this way, we may agree on rescheduling or deferment of our debts, and this would help maintain good communication with the creditor as well as our business relationship with it.

It is not always possible to reach agreement with the creditor, but there may still be a desire on both sides to reach an agreement. When this is the case, we can resort to mediation, which is conducted by trained and certified mediators. Mediation is an entirely voluntary way of settling disputes and is not binding. The purpose of mediation is to settle the dispute and to conclude a mutually beneficial agreement, which however is binding on both sides.

It is still at this stage to assess whether the creditor's claim has not been time-barred. The principle is that the receivables of private creditors are extinguished at the expiration of a 5-year limitation period, but there are also exceptions – rent, interest, penalties and periodic payments (for example, rent or liabilities to heating companies, mobile operators, electricity distribution companies) are extinguished with a 3-year statute of limitations. Public debts to the State are extinguished with a 5-year statute of limitation, and absolute limitation is 10 years. However, in order to apply the limitation period, it is first necessary to carefully analyze the specific receivable and its components, and then we need to inform the creditor that we consider the claim to be time-barred.

It is possible that we have counterclaims against our creditor, which we can set off, thereby partially or wholly settling our debt.

Next, we may refuse to pay, in whole or in part, our creditor under a contract if it has not fulfilled any of its obligations under the contract with us.

Of course, the most common way to protect against creditors is to dispose of property, including its transfer, in order to settle the debt, but this should be done very carefully and in accordance with the current legal regime. Types of disposal of assets include a sale, exchange, donation, in-kind contribution, transformation of the enterprise – by way of separation or dividing, merger and amalgamation, as well as the creation of a mortgage or pledge.

There is a possibility for the debtor to initiate a stabilization procedure, the purpose of which is to reach an agreement between the debtor and its creditors about the way of settling the debt, which will lead to the continuation of the company.

As a last resort, it is also possible to start insolvency proceedings.

4. Defense when enforcement proceedings for debt collection have commenced


It should be borne in mind that there are different legal ways of enforcement of debt – individual enforcement under the Civil Procedure Code, universal enforcement (insolvency) under the Commercial Law, enforcement under the Registered Pledges Act, enforcement under the procedure of the Tax and Insurance Procedure Code and realization of the financial collateral under the Financial Collateral Arrangements Act. Given that each of these proceedings develops differently and based on different legal acts, this article will only point to some common features of the most widespread enforcement proceedings, namely the individual enforcement under the CPC. First of all, it should be noted that when an enforcement case has already been instituted with an enforcement officer, we do not recommend hiding and/or not receiving the messages and summons from the enforcement officer. Hiding only makes sense if you are aiming for a certain delay in the proceedings, but it will not bring about a qualitative change in your situation. On the contrary, proceedings will develop without your participation, and you will thus be deprived of the opportunity to react promptly to any action on you that you consider to be unlawful, while at the same time adding additional costs at your expense. As stated above, when an order for immediate enforcement and writ of execution was issued, the protection against them is being implemented at this stage through an objection and an appeal against the immediate execution order.

In the case of an enforcement case, the defense is mainly done through an appeal against the actions of the enforcement officer. Only strictly defined actions specified in the law are subject to appeal, so it is extremely important to be informed of the stage of the enforcement case and to respond accordingly to any unlawful act. Individuals who have the right to file complaints are also strictly defined, generally speaking that they are the debtor or third parties affected by the enforcement.

Appraisal of attached/foreclosed property itself is not subject to appeal before a court, but you have the opportunity to challenge it before the enforcement agent, and the regime applicable to the assessment of movable and immovable property is different, respectively, the regimes concerning the challenge itself are different. However, in both cases, both in the case of challenging the appraisal of movable property and in challenging the appraisal of a real estate, if the enforcement officer refuses to reassess, you have the opportunity to appeal this refusal to the court.

The defense of an enforcement case initiated under the Civil Procedure Code can take place not only through an appeal against the actions of the enforcement officer, but also through a claim, as not only the debtor, but also third parties affected by the enforcement have the right to lodge a claims in the hypotheses provided by the law.

It is important to know that enforcement officers are liable if they have carried out irregular enforcement, and the defence of the debtor in this case is made through a claim for damages against the private enforcement agent (PEA), and if the enforcement agent is a public one (PEA), the action should be brought against the State.

The aforementioned defence stages cover defence options in a broader sense and not all legal options can be enumerated exhaustively due to the specificity of each individual case.

In this regard, our recommendation is in any case where you have doubts about your ability to independently carry out the above-mentioned defence, regardless of its stage, to contact a qualified specialist who possesses the necessary legal knowledge and professional skills to protect your rights and interests.


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