Debt collection in Bosnia and Herzegovina and compulsory enforcement - Law office

Law office Prnjavorac handles debt collection in Sarajevo and throughout Bosnia and Herzegovina. Below are answers to the questions creditors ask most often about recovering a debt.

1. How does debt collection work in Bosnia and Herzegovina and what stages does it involve?

Debt collection in Bosnia and Herzegovina generally moves through two stages: out of court and judicial. We begin by checking the debtor's solvency and assessing whether recovery is worthwhile, after which we send the debtor an attorney's demand letter with a precise calculation of the debt. Most cases are settled amicably at this stage. If the debtor still does not pay, we move to the judicial stage: a motion for enforcement when we hold an authentic or enforceable instrument, or a lawsuit when the claim is disputed. We explain the prospects, costs and expected duration before every step, and the procedure for companies is covered in detail on our page about enforced debt collection against commercial entities.

2. What does out of court debt collection include and why do we always start with it?

Out of court collection covers the attorney's demand letter, negotiations with the debtor, an agreement on the manner of payment and, where appropriate, a settlement on discharge of the obligation. We start with it because it is far faster and cheaper than court: debtors take an attorney's demand seriously, so a significant part of the debt is often paid within the deadline set in the letter. We keep in mind one trap creditors frequently overlook: an ordinary reminder does not interrupt the statute of limitations. For that reason we always set a time limit on the out of court stage and, if the debtor does not respond, move promptly to the judicial route before the deadlines expire.

3. When is initiating court proceedings necessary?

Court proceedings become necessary when the debtor ignores the demand, disputes the debt or avoids any agreement. We then choose between two procedural options: a motion for enforcement, if we hold an authentic instrument such as an invoice or a bill of exchange, or a lawsuit, if the claim is not documented in that way or the debtor contests it entirely. Before initiating proceedings we openly set out the likelihood of success, the court fee and other costs, as well as realistic time frames. We never start proceedings without the client's express consent. This approach saves the client money and directs collection only to cases where recovery is achievable.

4. How long does debt collection take in Bosnia and Herzegovina?

The duration depends on the stage at which collection ends. Out of court recovery takes from a few days to a few weeks. Enforcement based on an authentic instrument, if the debtor files no objection, is usually completed within a few months. Litigation takes longer, a year or more, depending on the complexity of proof and the court's caseload: the Municipal Court in Sarajevo has the largest inflow of cases in the country, while the district commercial courts in Banja Luka and Bijeljina handle commercial matters relatively promptly. By choosing the right means of enforcement, above all seizure of funds in accounts, recovery times can be shortened considerably.

5. When does a claim become time barred and which limitation periods apply?

Under the Law on Obligations, which applies in both entities, the general limitation period is five years (Art. 371). Special periods are shorter: mutual claims between legal entities arising from the supply of goods and services become time barred in three years (Art. 374), as do claims for rent (Art. 375) and for interest and other periodic payments (Art. 372). Claims for electricity, water and similar utilities supplied to a household become time barred in just one year (Art. 378), while a claim established by a final judgment becomes time barred only after ten years (Art. 379). The limitation period is interrupted by acknowledgment of the debt and by filing a lawsuit, or by another creditor's act before a court such as initiating enforcement or filing a claim in bankruptcy, whereas an ordinary reminder has no such effect.

6. What is the difference between an authentic instrument and an enforceable instrument?

An authentic instrument (an invoice, a bill of exchange and a cheque with protest where protest is required, an extract from business records for the price of utility services, and an interest calculation) allows the creditor to initiate enforcement without first conducting litigation. An enforceable instrument has greater legal force: these are a final court judgment, a court settlement and a notarial deed bearing an enforceability clause. The difference becomes apparent with objections: against a decision issued on the basis of an authentic instrument an objection as a rule leads to litigation, while the grounds for objection against an enforceable instrument are reduced by law to a minimum. We therefore advise creditors, whenever they can, to secure their claims in the form of an enforceable instrument.

7. Can repayment of a debt be secured in advance before a notary?

It can, and this is one of the safest solutions for a creditor. A settlement on discharge of the debt, an acknowledgment of debt or a commercial law contract for a sum of money can be drawn up before a notary as a notarial deed with an enforceability clause. Such a deed has the force of an enforceable instrument: if the debtor is late with even a single agreed installment, the creditor immediately files a motion for enforcement for the entire remaining debt, without litigation and without proving the merits of the claim. We regularly use this mechanism when rescheduling existing debts, because it gives the debtor the chance to pay in installments and the creditor full legal protection if the arrangement is not honoured.

8. Before which court is enforcement initiated and how does it proceed?

A motion for enforcement is filed with the court having subject matter and territorial jurisdiction according to the debtor's registered office or residence, or the location of the debtor's assets. In the Federation of BiH these are the municipal courts, for example in Sarajevo, Tuzla, Zenica or Mostar; in Republika Srpska the basic courts, that is the district commercial courts for commercial entities; and in the Brčko District the Basic Court of the Brčko District of BiH. On the motion the court issues a decision on enforcement, which is served on the debtor and on the bank or employer, after which seizure and transfer of funds follow, or an inventory, valuation and sale of assets. We describe the entire course of the procedure, step by step, on our page about debt enforcement proceedings.

9. What happens if the debtor files an objection to the decision on enforcement?

The consequences of an objection depend on the type of instrument on which enforcement is based. With an authentic instrument a timely objection as a rule turns the procedure into litigation: the court then examines the merits of the claim as if a lawsuit had been filed, and the creditor proves the debt with the contract, invoices and other documentation. With an enforceable instrument (a judgment or a notarial deed) an objection is allowed only on narrow statutory grounds, for example if the obligation has already been performed, and in practice rarely succeeds. An objection therefore should not discourage a creditor: with proper documentation the procedure ends in recovery of the principal, default interest and all costs charged to the debtor.

10. Against which of the debtor's assets can enforcement be carried out?

Enforcement may be ordered against funds in all of the debtor's accounts, against salary and other regular income, against movable property such as vehicles and equipment, against real estate recorded in the land registry, and against shares, ownership stakes and other property rights. In practice, recovery from a bank account is the fastest and cheapest, so we most often start with it. We check the debtor's assets in advance through the Single Register of Accounts of Business Entities of the Central Bank of BiH, the land registry offices and the records of registered vehicles, so that from the outset enforcement is directed at assets from which recovery is realistically achievable.

11. How much of a salary or pension can be subject to enforced collection?

In the Federation of BiH enforcement against salary may as a rule reach up to one half of the debtor's salary. Pensions enjoy enhanced protection: for the minimum or guaranteed pension enforcement is limited to one third, and when ordering enforcement the court also takes the debtor's financial situation into account. Similar limits exist in Republika Srpska and the Brčko District. The withholding of part of the salary is carried out by the employer on the basis of the decision on enforcement, every month until full settlement. For a creditor this is a slower but extremely reliable method of collection against employed debtors, because it does not depend on the current balance in the account.

12. What if the debtor has no assets or is unemployed?

The claim should not be written off in that case. A debt established by a final judgment becomes time barred only after ten years, and every new request for enforcement interrupts that period so that it starts running again. This means collection can be reactivated as soon as any assets appear: new employment, inherited real estate, a purchased vehicle or the founding of a business entity. Our experience shows that patient and consistent monitoring of the debtor's financial situation, with timely repetition of enforcement actions, brings recovery even in cases that looked hopeless for years.

13. What are the costs of debt collection and who ultimately bears them?

The costs consist of the court fee, calculated according to the value of the claim, the attorney's fee under the applicable attorney's tariff and, where necessary, the costs of expert evaluation or of carrying out enforcement. We present all of these amounts to the client in advance, before any engagement. Under the rule on costs, the party that loses the dispute is obliged to reimburse the other party's costs of the proceedings, which means that a diligent creditor ultimately recovers from the debtor the principal, default interest and the full costs. It is precisely this prospect that often motivates debtors to pay the debt immediately upon receiving the attorney's demand.

14. Am I entitled to default interest and at what rate?

You are. Default interest is due to the creditor from the day the debtor falls into default, regardless of whether it was agreed. In the Federation of BiH the rate is 10% per year under the Law on the Default Interest Rate (Official Gazette of FBiH, no. 18/20), with conformal calculation for periods shorter than a year. In Republika Srpska default interest is 0.03% per day (Official Gazette of RS, no. 61/18). In both entities a limit applies that the accrued interest may not exceed the amount of the principal debt. Interest runs during the court proceedings as well, so any delay by the debtor increases the total amount they will ultimately pay.

15. Can creditors from abroad and the diaspora collect a debt in Bosnia and Herzegovina?

They can, and we handle such cases daily. On the basis of a special power of attorney we conduct the entire collection procedure in Bosnia and Herzegovina without the client needing to travel to the country, from the demand letter to enforcement. Foreign court decisions are recognized before the cantonal court in the Federation of BiH or the district court in Republika Srpska, after which they are enforced as domestic ones. We represent creditors from Germany, Austria, Switzerland, Slovenia and other countries, as well as our diaspora, before the courts in Sarajevo, Banja Luka, Tuzla, Zenica, Mostar, Bijeljina, Brčko, Prijedor, Doboj, Trebinje, Cazin and Travnik, in practically every city where the debtor has a registered office or assets.