I. Creating a debt collection procedure for Bulgaria both out and in court according to Bulgarian Law?  What are the expenses for Court procedures?
Collecting outstanding debts in Bulgaria is a difficult and rather expensive procedure, in the other hand a lot of  efforts must be put in collecting the amount in an out-of-court way.  

II. Court procedure.

1.Litigation: litigation as being the most frequently used debt

collection method. There are certain draw-backs that  I will reveal.

1).Huge costs – incl. court taxes (4% of the amount claimed), taxes and deposits for experts examinations, lawyers' fees, taxes for other evidential claims, translations, legalizations etc.

Usually costs are around 10% of the claim, but for claims below BGN 600* they can reach 50% of the claim.

2). Cumbersome procedure of hearings setting and lawsuit management. Judges at first instance courts (especially in the capital Sofia, Sofia District Court and Sofia City Court) are overwhelmed (15-20 court cases are appointed for hearing on the same day).If the case is postponed the new court session is usually more than 2 months away (e.g. for Sofia City Court 3-4 months later). The Law allows for numerous appeals and case trials before higher instance courts. An appeal can run for more than a year. The creditor has to be patient and wait for two or three years to receive the court ruling together with the legal sanction against the debtor – a court decision and a writ of execution. A new procedure must be started for the voluntary or

compulsory execution.

 3). Cumbersome procedure – despite amendments in the Civil Procedure Code passed in 2002 serving summons for the first court session is extremely problematic. The court postpones the case several times. In cases of District or City Courts irregular summons can well take a whole year thus enormously increasing the duration of the process.

4). There are numerous cases of controversial opinions of experts

examination which reveals experts' corruption. On many occasions the court appointed expert directly contacted the parties to make them bid for a favorable expert opinion.

2. Execution procedures.

 After the court decision is passed in 95% of the

cases the debtor does nothing to repay the debt, obliging creditors to resort to execution procedures for compulsory collection through a bailiff. Despite the amendments in the Civil Procedure Code related to compulsory execution to make it faster and more efficient , companies still face many problems. Find below some of the draw-backs listed :

1). Cumbersome process of date setting, procedure management and summons serving. The execution procedure is equally difficult. It cannot be established if

there is such a debtor, private individual or trader, at the addresses given by the first

_____________________ *1? =1, 955 BGN (leva)

Bulgarian national Bank – 09.09.2005

 

instance court or by the creditor; a creditor's representative had better personally supervise the serving of papers and summons. Often the bailiffs consider the fact of the debtor’s not being found at the address given by the creditor to be sufficient enough reason to abandon execution. The creditor is required to present information about the bank accounts, the existing realities, movables and other debtor’s assets. In most cases the creditor cannot provide such data and blocking of bank

accounts, distraint on movable assets and realities get delayed.

2). Bailiffs and clarks work in extremely bad conditions and they are overwhelmed.

3). The law concerning public auctioning is clearly set in favour of the debtor (art. 367 to art. 389, as well as art. 348 of the Civil Procedure Code). For the public sale the auctioneer gets a low commission – 5% of the sale price. The sale expenditures are in most cases paid by the creditor. A distrained item is auctioned at the price set by the court appointed expert, no market price is taken into consideration. By law the item cannot be sold below the price set by the expert. In case this occurs, the vendor must cover the difference out of his own pocket . Companies consider that the text of art. 371 “if the item is not sold within 3 months from delivery to the auctioning shop or from the announcement of the sale, the article is free of distraint and is to be returned to the debtor” directly favours the debtor; within the 3-month period the creditor can ask for a second auctioning and in this instance paragr. 2 of the same article allows for an up to 20% reduction of the price set by the expert. If the item remains again unsold, it is free from distraint and is returned to the debtor. The same holds true for auctioning of realties – in case there are no vendees or valid offers, a second public sale can be organized at 80% of the price set. If the realty is still not sold, it is free from execution and the distraint is lifted by bailiff’s request.

3.The expenses for Court procedures

I may not include in this resume all applicable taxes as they are set in a schedule of taxes which has over 60 items. However I will mention some for comparison and general information.

State tax on submitting a claim – 4% of the amount of the claim (if property claim the amount is ?? of the tax value of the immovable property) but no less than 30 lv. (EUR 15);

State tax on submitting appeal – ?? of the stat tax paid for initiating the claim;

State tax on claim for issuing of writ of execution based on non-court title of execution – 2% of the amount of the claim;

There are various other taxes for different motions before the court, for receiving certificates etc. Also there are costs for experts appointed by the court which are estimated by the judges. Such costs depend on the complexity of the expert opinion and on the material which should be reviewed. They vary between 50 leva and 3000 leva dependant on the kind of expertise.

The Supreme Advocacy Council has established a schedule of minimum lawyers fees for representation on court cases. For civil and trade cases this fee is 2% on the amount of claim for claims over 10 000 BG leva. Up to 10 000 BG leva is 560 leva (and there are smaller fees for less amounts). Normal practice of the lawyers (with higher qualification and reputation) is to collect double the minimum lawyers fee. 

3. Additional costs of collection through litigation

Legal charges are : 

-For Firs Instance:                    4% of the  total claim amount

-For Second Instance:              2% of the total claim amount

-For Third Instance:                 2% of the total claim amount 

These are the court taxes to start the procedure and they are paid in advance. 

Fee for the lawyer is:

-When the total claim amount is between 5000 BGN and 10 000 BGN, it is between 340 BGN and 5000 BGN +4% of the total claim amount.

- When the total claim amount is over 10 000 BGN, it is between 540 BGN and 10 000 BGN +2% of the total claim amount. 

Usually lawyers are paid in advance the main fee and the percentage at the end of the case.

Before starting the litigation procedure, we inform you about the chances of success, thereby preventing the occurrence of high expenses for unsuccessful cases.

The total claim amount is made by the main claim amount, added with interest.

Furthermore, please note that after a successful collection through litigation, the judge automatically decides that the debtor must compensate a part of the legal costs.  

III. Out-of-court debt collection by professional agencies

In the developed countries out-of-court debt collection by professional agencies has an almost 150-year history.

The advantages of debt collection by professional agencies are the following:

1) Such agencies keep data bases on bad debtors and calculate credit ratings and

credit limits.

2) Collection agencies charge only percentage on the amounts collected, clients only

have to pay in case when debts are actually collected.

3) It is time and cost effective, sparing the creditor’s need to organize his own debt

collection department.

4) The psychological effect on the debtor; he’s informed that in case of non-payment his credit rating will be affected.

5) Collection agencies give their opinion on whether legal actions are appropriate 

The following facts explain why this method is not widely used in Bulgaria:

1) These services are new for Bulgaria and clients still do not trust them.

2) Often they are offered by criminal structures as well.

3) Using negative information when determining the credit risk is still not popular in Bulgaria, that's why the psychological impact on debtors is weaker than in the EU.