With the Thai economy stagnating, household debt is reaching record levels on an annual basis. According to the University of the Thai Chamber of Commerce, the average household debt reached nearly 300,000 baht in 2016.
This amount is higher than the annual income of the average Thai family. Seventy-four percent of families in debt have defaulted on a loan.
The high default rate is a concern for people or businesses that have loaned money. If someone has stopped paying on a debt, what should the creditor do? The first thing for a creditor is to ensure that their loan is enforceable.
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 proven with a document signed by the borrower.
A loan for a movable property (non-fixed property) is covered by Title XIII, Chapter I of the Civil and Commercial Code.
These loans require a written agreement 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 loan, the creditor must first notify the debtor in writing to perform their obligation within a reasonable period.
The Thai Civil and Commercial code does not require a written agreement for contractors. Under the law if the contractor has completed any part of the work, the employer is liable for the completed part. 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.
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.
If the debtor has defaulted on a loan, the creditor should try to mitigate the losses before filing a lawsuit. 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. A good negotiated settlement might be able to save the relationship.
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.
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 can pay the debt 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. A mediator who will attempt to push the parties to come to an agreement.
If mediation fails, the parties will have to make their arguments in 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. The creditor should consider the value of litigation in respect to the possible gain.
A good attorney will discuss the matter with the creditor so that they will have reasonable expectations and can make an informed decision. Spending money and time on a lawsuit then losing the case is worse than not filing the case at all.
By Robert R. Virasin and Yutthachai Sangsirisap
Mr. Robert R. Virasin is a licensed U.S. Attorney and managing director of Virasin & Partners. Mr. Yutthachai Sangsirisap is a licensed Thai Attorney. They can be reached at [email protected] or at www.virasin.com.