It has recently been reported that household debt in Thailand has tripled in the decade with household debt accounting for about 83.5% of the gross domestic product and will rise to 89% in 2015.
About a third of the average Thai household monthly income is used to service debt. In November, 2014, the National Economic and Social Development Board has stated that non-performing loans has increased by 31.8% from the previous year. It is not surprising that many people in Thailand are having difficulty paying their bills.
If someone has stopped paying on a debt, what should the creditor do?
Review Thai Law to Ensure Enforceability of the Debt
Title IX, Chapter II of the Civil and Commercial Code outlines the requirements for consumer loans. A loan exceeding 2000 baht must be written and signed by the borrower. Repayment or cancellation of a loan exceeding 2000 baht can only be evidenced by a document signed by the borrower.
Title XIII, Chapter I of the Civil and Commercial Code covers a loan for movable property. The loan requires a contract which outlines the obligation for performance of the loan with interest, compensation in case of non-performance, and requirements to preserve the pledged property. If the debtor defaults on the pledge, the creditor must first notify the debtor in writing to perform their obligation within a reasonable period.
Title VII of the Civil and Commercial Code covers the requirements for to collect remuneration by contractors. While a contract is not required, it is recommended that the parties have a paper agreement outlining the rights and obligations of each party. Without a contract term stating otherwise, an employer can cancel the job as long as the employer compensates the contractor for loss. If the contractor is has completed any part of the work, the employer is liable for the completed part.
The Thai Civil and Commercial Code covers multiple types of relationships. It is important to review the type of relationship in the creditor and debtor relationship to ensure that the documentary requirements are met. In addition, the creditor should review statute of limitations on attempting to collect on the debt. Different types of debts have different time limitations for collecting on a debt. Most debts have a statute of limitation of 10 years but some debt claims are limited to five or two years. After the time limit has passed, the debtor can legally refuse to pay the debt.
Understand the Current Financial Situation and Negotiate with the Debtor
Before filing a lawsuit or sending the case to the bill collector, the creditor should discuss the situation with the debtor. A lawsuit can be expensive and time consuming without an assured outcome. It might be in the best interest to attempt to negotiate a partial payment or an extended payment plan to avoid litigation. When negotiating, the creditor and debtor should both prioritize what they both require. A good negotiated settlement might be able to save the relationship.
Demand Letter then Lawsuit
If negotiation has not produce an agreement, the creditor can choose to move forward with potential litigation. Some claims require that the creditor serve the debtor with a demand letter outlining the claim and requesting payment with a reasonable time period to comply with the demand. An attorney can prepare the demand letter in preparation of a lawsuit.
If the demand letter is ignored, the creditor can move forward with filing a lawsuit. The attorney needs to review the information and history of the dispute to ensure that a lawsuit is plausible and reasonable. If the debtor has the ability to pay or owns property that can be held in lieu of financial payment, then it may be reasonable to pursue litigation. However, if the debtor does not have a job or property, a court ordered judgment will be difficult or impossible to collect.
The lawsuit begins with the filing of a claim with a court. The place of filing will depend on the value of the debt or the type of debt. After filing the claim, the court will generally require the parties to go to mediation. The mediation is conducted by a mediator who will attempt to push the parties to come to an agreement.
If mediation fails, the parties will have to produce their evidence to the court. The court will consider the evidence and make a judgment. If the debtor does not comply with the court judgment, the creditor can request a writ of execution to force the seizure of the debtor’s property and the auctioning of the property to collect repayment on the debt.
The process of filing a lawsuit to collect on a debt is time consuming and expensive. It is better for a creditor to attempt to negotiate with the debtor to avoid litigation. However, if litigation is necessary, the creditor should hire an experienced to pursue the matter. Spending money and time on a lawsuit then losing the case is worse than not filing the case at all. A good attorney will discuss the matter with the creditor so that they have reasonable expectations and can make an informed decision.
By Mr. Robert R. Virasin
Our licensed Thai lawyers at Siam Legal International in Bangkok have valuable knowledge in dealing with government agencies in Thailand, and this experience is of great importance when dealing with Thai legal cases and investigative service.