In Turkiye, debt collection is governed by a formal legal framework established to provide creditors with avenues to recover unpaid debts in a fair, orderly, and legal manner. The primary law guiding these proceedings is the Turkish Enforcement and Bankruptcy Law (EBL or in IIK in Turkish). This article provides an overview of debt collection through enforcement proceedings, detailing the legal framework, types of enforcement, and procedural steps for creditors seeking payment.
1. What is Enforcement Proceeding?
Enforcement proceedings in Turkiye are legal mechanisms enabling creditors to collect unpaid debts through judicial processes. The process ensures compliance with legal principles while protecting both creditors and debtors’ rights. The main types of enforcement proceedings include enforcement without judgment, enforcement with judgment, and bankruptcy proceedings. Each approach offers unique methods for pursuing debt collection based on the nature of the debt.
2. Types of Enforcement Proceedings
a. Enforcement without Judgment
This procedure allows creditors to initiate debt recovery without an underlying court decision. It is commonly used in cases involving promissory notes, invoices, and rental contracts. Creditors file a petition with the Enforcement Office, which notifies the debtor of the claim and issues a payment order. If the debtor fails to respond or object within a specified timeframe, the enforcement process moves forward.
b. Enforcement with Judgment
When a creditor possesses a court judgment, this type of enforcement can be pursued. Enforcement with judgment is more straightforward as the court’s decision already establishes the creditor’s right to payment. The Enforcement Office enforces the judgment, including options to seize and liquidate the debtor’s assets if necessary.
c. Bankruptcy Proceedings
Bankruptcy proceedings are initiated when the debtor is a commercial entity and unable to meet its financial obligations. A creditor may file for bankruptcy to collect unpaid debts by liquidating the debtor’s assets. In Turkiye, bankruptcy proceedings typically involve a formal announcement of bankruptcy, followed by asset liquidation and distribution among creditors according to priority.
3. Key Steps in Enforcement Proceedings
The debt collection process in Turkiye involves several critical steps:
a. Filing the Enforcement Request
Creditors must first submit a written request to the Enforcement Office, detailing the amount owed and any supporting documentation. This initiates the enforcement process, and the Enforcement Office subsequently notifies the debtor.,
b. Issuance of the Payment Order
Upon receipt of the enforcement request, the Enforcement Office issues a payment order to the debtor, instructing them to pay the outstanding debt within seven days. The debtor may either pay the debt, object to the claim, or take no action.
c. Debtor’s Objection
If the debtor objects to the debt within the specified timeframe, the process is temporarily suspended. Creditors may then initiate a lawsuit for the removal of the objection (by applying to mediator firstly if it’s mandatory), where the court determines the validity of the creditor’s claim. If the court rules in favor of the creditor, enforcement proceedings continue.
d. Asset Seizure and Sale
When the debt remains unpaid and the debtor’s objection is dismissed, the Enforcement Office proceeds with asset seizure. The assets may include movable and immovable property, as well as bank accounts. Seized assets are subsequently auctioned, and proceeds are allocated to satisfy the creditor’s claim.
4. Legal Protections for Debtors
Turkish enforcement proceedings include protections to balance debtor rights with creditor claims. Some critical protections include:
Essential Asset Exemptions: Basic assets necessary for a debtor’s livelihood, such as certain household items and personal effects, are generally exempt from seizure.
Right to Object: Debtors may object to the payment order, preventing enforcement until a court verifies the debt.
Bankruptcy Settlement Agreements: In cases of bankruptcy, debtors may propose a settlement plan to restructure payments and avoid asset liquidation.
5. Common Pitfalls and Challenges in Debt Collection
Debt collection in Turkiye can involve several pitfalls, including:
Debtor Objections: Debtors often object to claims, delaying proceedings. Creditors may need legal assistance to navigate the objections and initiate additional lawsuits.
Insufficient Assets for Recovery: Sometimes, debtors lack sufficient assets to cover the debt, rendering enforcement ineffective.
Extended Timeframes: Legal proceedings, particularly for bankruptcy, can be time-consuming. Creditors should be prepared for potentially lengthy processes.
6. Do Foreigners Have the Right to Initiate Enforcement Proceedings in Turkiye?
Yes, foreigners (even if they do not reside in Turkiye) can initiate all enforcement proceedings in Turkiye.
Shall be noted: In order to protect debtors from harm, in some cases, persons who do not reside in Turkiye may be requested to deposit collateral for legal proceedings.
Foreign creditors in Turkiye face unique challenges in enforcing debts, particularly around jurisdiction and recognition of foreign judgments. While Turkiye is party to international agreements facilitating enforcement of foreign judgments, the process may still require additional documentation and legal assistance. Key steps foreign creditors should consider include:
Obtaining a Turkish Attorney: Legal counsel familiar with Turkish enforcement law can assist with filing procedures and overcoming obstacles.
Recognition of Foreign Judgments: A foreign judgment must be recognized in Turkiye before enforcement. This process may involve an exequatur procedure, where the Turkish courts formally accept the foreign ruling as enforceable.
7. Common Defenses Used by Debtors
Debtors may employ various defenses in enforcement proceedings, including:
Claim of Invalid Debt: A debtor may argue that the debt is invalid or unenforceable, especially if they believe the creditor’s claim is inaccurate or incomplete.
Statute of Limitations: Creditors must be aware of the statute of limitations for debt collection in Turkiye. If a debt has expired, the debtor can argue it is no longer collectible.
Demonstrating Insufficient Means: In cases where the debtor genuinely lacks assets, creditors may need to re-evaluate the potential for recovery.
8. Some Recommendations Based on Experience: How to Guarantee Collection of the Receivables?
In practice, there are some obstacles to the collection of receivables. Undoubtedly, the biggest of these is the debtor’s lack of assets to pay. In Turkiye, with a few limited exceptions, there is no sanction such as imprisonment for non-payment of debt.
This also encourages debtors to evade their assets in some cases. Evasion of assets is sometimes carried out by continuing commercial activities through other companies, and in some cases by registering assets under the names of third parties. There are many methods of evading assets from creditors.
In these cases, we would like to give creditors a few recommendations based on our experience:
- Before starting enforcement proceedings, the debtor’s asset status should be examined using legal methods. In this way, realistic transactions are carried out and unnecessary transaction costs are avoided.
- When it is understood that the debtor is avoiding payment, starting legal proceedings without wasting time is beneficial in many cases. Early diagnosis can save lives. It may be possible to carry out seizure transactions before the debtor evades his assets.
- Especially in commercial receivables, precautionary measures and precautionary seizure procedures can be carried out quickly on the debtor’s assets. In these cases, it is possible to secure the receivables.
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