Debtor means a person who is under the obligation to fulfil a financial obligation to another person, that is a creditor. The creditor may request the debtor to fulfil the obligation.
Creditor means an individual, company, or an organisation who has a financial claim against another person, that is a debtor. This means that the creditor expects the debtor to fulfil their agreed or legal obligation, such as to repay a loan or pay an invoice. If the debtor fails to fulfil their obligation in a timely manner, the creditor may request payment of the debt by the debtor and apply different measures to have their money repaid.
Financial difficulties mean a situation in which a person has difficulties with fulfilling their financial obligations. This happens when their expenses are higher than their income and they are unable to fulfil their obligations undertaken by a loan, instalment, or service agreement fully or partially (e.g. fail to pay an invoice or instalment).
A debt advisor helps the person to find solutions for overcoming their financial difficulties and for dealing with their debts.
Debt counselling
The debt counselling service is provided by the local municipality and is usually provided free of charge. If you need debt counselling, contact the social welfare board of your local municipality and you will be referred to a debt advisor.
The Unemployment Insurance Fund may also refer those who are registered as unemployed individuals or have been served a layoff notice to a debt advisor. You should mention your need for debt counselling to a consultant at the office of the Unemployment Insurance Fund. They will tell you more about the service and refer you to a debt advisor.
You can also seek debt counselling independently, but, as a rule, you will be required to pay for the service in this case. The price list of the service is established by the provider of the debt counselling service. Depending on the needs of the individual, the service can still be received for free with the help of the debt advisor, if an agreement is reached with the local municipality.
Further information about the debt counselling service and how to contact a debt advisor, as well as the contact details of debt advisors can be found on the website of the Estonian Creditors Association.
Payment of a debt
If you encounter payment difficulties, it would be reasonable to first contact the creditor for agreeing on a payment schedule. Negotiations on a payment schedule may be held in any stage of the process, even if the claim has already been referred to a court or if there are enforcement proceedings ongoing.
When concluding payment schedules or acknowledgements of obligations, check the amount of the debt and the amounts of the interest on arrears and other ancillary claims.
Consequences of a debt
In the event of a delayed payment, the creditor may add an interest on arrears to the debt. The creditor may send you reminders and warnings for the payment of the debt. The cost of sending the reminders and warnings may be added to the debt.
In the event of several consecutive overdue payments, the creditor may cancel the agreement prematurely. Premature cancellation of the agreement may also be accompanied by a contractual penalty. In the event of loan or instalment agreements, the entire outstanding loan balance will become payable, which means that you will have to pay the entire outstanding loan balance at once.
If a debt is ignored, ancillary claims will be added to the principal amount of the debt and the amount payable will increase.
The creditor may turn to the courts (expedited order-for-payment procedure or action-for-claim proceedings) to have the debt paid and to obtain an execution document.
Before turning to a court, the creditor may also use the services of a debt collection agency to collect the debt. The creditor may transfer the claim against you to a debt collection agency or conclude a cooperation agreement with them for the collection of the debt. Upon transferring of the debt, your legal relationship with the initial creditor is terminated and you will need to continue to communicate with the debt collection agency which will be your new creditor. The agency usually gets in touch with the debtor and coerces them to pay the debt and/or conclude a payment schedule. Debt collection agencies usually also add collection costs to the initial debt.
Debts in court proceedings
Expedited order-for-payment procedure is a fast and simple form of court proceedings for claiming a specific amount of money. The expedited order-for-payment procedure is faster than the action-by-claim proceedings, and the burden of proof and costs are also lower.
In an expedited order-for-payment procedure, the creditor is referred to as the petitioner.
In an expedited order-for-payment procedure, the petitioner must briefly describe the circumstances of their claim and the proof and specify the amount claimed. The court only checks the claim filed for an expedited order-for-payment procedure from the formal perspective – whether or not the procedure is permissible and compliant with the law.
Having received a proposal for payment from the court, the debtor must check whether the information specified in the proposal is correct – who filed the claim and on which grounds.
Within fifteen days after receiving the proposal for payment, the debtor must:
- pay the debt and the case costs specified in the proposal for payment, if the claim is justified;
- notify the court and the petitioner of their intention to conclude a payment schedule, if the claim is justified, but they are unable to pay the debt fully at once. The contact details of the petitioner are provided in the proposal for payment. If the debtor manages to reach an agreement with the creditor for payment of the debt by instalments, a compromise is agreed on in court which must be observed exactly as agreed;
- submit their objections to the court, if they do not agree with the claim specified in the proposal for payment. The creditor will still be entitled to file an action with the court for the repayment of the same debt.
By failing to respond to the documents sent by the court, the debtor may waive their right to object to the claim!
In the event of the debtor failing to object to a proposal for payment in a timely manner or pay the amount specified in the proposal for payment, the court will issue a court order of an order-for-payment. The order-for-payment is an execution document.
Execution document means a document by which the creditor can turn to an enforcement agent and initiate enforcement proceedings against the debtor.
Action-by-claim proceedings are initiated:
- when a debtor submits an objection to a proposal for payment in an expedited order-for-payment procedure and the Department of Orders for Payment transfers the claim for action-by-claim proceedings;
- if a debtor files a claim with the court (without prior expedited order-for-payment procedure.
In action-by-claim proceedings, the person claiming a debt is referred to as the plaintiff and the debtor is referred to as the defendant.
The court accepts a proper action and delivers it to the defendant.
The defendant must respond to the court whether they agree with the action or object to it. In the case of objecting, the debtor must submit all their objections against the claim, and also prove all their statements. In order to defend one’s rights, it is very important to observe all deadlines specified by the court.
In action-by-claim proceedings, a state fee is added to the debt the amount of which depends on the amount of the debt, as well as other case costs (that is fees payable to the lawyer). If the action is satisfied, the defendant must usually also cover the case costs of the other party, that is the plaintiff.
If the defendant fails to respond to the court or responds too late and fails to observe the deadlines, the court grants the action by a default judgment. A default judgment is an execution document.
A compromise agreement may be concluded with the plaintiff in action-by-claim proceeding, as well as a payment schedule for payment of the debt. The court will approve the compromise agreement by an order which is deemed an execution document.
In the event of the plaintiff and the defendant failing to agree on the payment of the debt in the course of action-by-claim proceedings, the judge will pass a ruling pursuant to the law and on the basis of the explanations and proof provided by both parties. The court ruling is an execution document.
Debts in enforcement proceedings
Enforcement proceedings are initiated by an enforcement agent on the basis of a petition and an execution document submitted by the creditor. An order-for-payment, a court ruling or a decision of a rent committee or a labour dispute committee, a notarial agreement, or an administrative deed issued by a tax administrator may be used as the execution document.
In the beginning of the enforcement procedure, a deadline is granted for the debtor for voluntary compliance. This is the last chance for the debtor to reach an agreement with the creditor for drawing up a payment schedule. During the term of voluntary complying, the debtor must contact the enforcement agent and submit their proposal for the payment of the debt.
If the debtor fails to submit a proposal for the voluntary payment of the debt within the period specified, the enforcement proceedings continue. The enforcement agent is entitled to seize the bank account, movable and immovable property, remuneration, disability allowance, wages, etc. of the debtor.
In enforcement proceedings, the costs of initiating the proceedings, enforcement costs, and the enforcement agent’s fee are also added to the debt and the case costs.
An in-depth overview of the rights of a debtor in enforcement proceedings, how to find information about your enforcement proceedings, and how to apply for the closure of enforcement proceedings can be found on the website of the Ministry of Justice.
Debtors may always ask a debt advisor or a lawyer for advice.
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References
Services
- Execution proceedings commenced against a debtor
- Self-service environment of the Estonian Unemployment Insurance Fund