In the context of today’s market economy, lending, sale and purchase transactions, and business cooperation relationships are increasingly developing. As a consequence, overdue debts and bad debts have become more common and more complex. Many individuals and enterprises fall into situations where their capital is misappropriated, seriously affecting production and business activities as well as their lawful rights and interests. Thus, the following article by NPLaw provides the legal regulations governing debt recovery or help our readers choose appropriate methods to protect their rights in a lawful and effective manner, simultaneously, NPLaw also introduces our legal consultancy on debt recovery.

I. Why it is necessary to engage legal consultancy on debt recovery

Debt recovery, whether involving personal or corporate debts, is not merely a financial issue but also directly involves legal regulations. In practice, many creditors have difficulties in recovering debts due to a lack of legal knowledge, the use of improper methods, or insufficient time and resources to pursue the matter. Therefore, engaging debt recovery consultancy services is necessary and brings about many practical benefits, including:

  • Proper understanding and application of legal regulations: Legal consultancy enables creditors to clearly understand their rights and obligations, distinguish between different types of debts (civil debts, commercial debts, etc.), and select appropriate legal grounds to pursue debt recovery in accordance with proper procedures and the law.
  • Avoidance of legal risks and professional handling: Some creditors, due to impatience or lack of legal knowledge, resort to unlawful measures such as threats or coercion, leading to criminal consequences. Legal consultancy on debt recovery through professional and lawful measures such as negotiation, mediation, drafting compliant debt demand notices, or representing clients in legal proceedings is necessary.
  • Time, effort, and cost save: Experienced legal consultants can assess the recoverability of a debt and select the most effective and expedient recovery methods, helping to avoid unnecessary or prolonged procedures.
  • Increase in the likelihood of successful debt recovery: The early involvement of legal professionals enhances credibility when dealing with debtors and supports the collection of evidence and documents necessary for litigation or enforcement proceedings if required.
  • Protection of corporate reputation and image (if applicable): For enterprises, improper debt recovery practices may adversely affect partner relationships and brand reputation. 

II. Legal regulations on debt recovery

1. What is debt recovery?

Debt recovery refers to the process by which a creditor (an individual, organization, or enterprise) applies measures to require a debtor (borrower, purchaser, business partner, etc.) to pay amounts that have fallen due but have not been fulfilled in accordance with the commitment.

Debt recovery may be performed through various means such as negotiation, written payment demands, court proceedings, or intervention by enforcement authorities (where a legally effective judgment or decision already exists).

Under Vietnamese law, debt recovery is not defined as a specific legal concept in normative legal documents; however, it is a practical activity recognized and regulated through provisions on civil obligations, civil contracts, commercial contracts, civil procedure, and civil judgment enforcement.

2. Legal grounds for debt recovery

To lawfully recover a debt, the creditor must possess sufficient grounds to prove the debtor’s payment obligation. Typical grounds include:

  • Loan agreements, sale and purchase contracts, business cooperation contracts, service provision contracts, etc., which constitute important evidence of the parties’ agreement on payment obligations.
  • Documents evidencing the delivery and receipt of money, goods, or services, such as receipts, delivery notes, invoices, statements, bank transaction records, emails, and messages.
  • Debt repayment commitments or debt confirmations prepared or signed by the debtor.
  • Legally effective judgments or decisions of the court, where the debt recovery has previously been litigated and resolved through judicial proceedings.

Clear and sufficient grounds facilitate lawful debt recovery in accordance with proper procedures and significantly enhance the likelihood of success.

3. Debt recovery methods 

Depending on the specific circumstances, creditors may choose one or a combination of the following debt recovery options:

Direct negotiation and mediation

  • It is the preferred initial approach, as it helps save time and costs while maintaining relationships between the parties. Creditors may send debt notices, request payment, or directly work with the debtor to agree on repayment plans, timelines, and methods.

Issuance of formal demand letters / legal notices

  • Where the debtor persistently delays payment or deliberately fails to cooperate, sending a payment demand letter under legal authority (from a lawyer or authorized representative) may create pressure and improve negotiation effectiveness.

Initiation of court proceedings

  • If negotiation proves ineffective, creditors have the right to initiate a lawsuit before a competent People’s Court in accordance with the Civil Procedure Code. Upon obtaining a judgment or decision on payment, the creditor may request civil judgment enforcement to recover the amount awarded.

Use of lawful debt recovery support services

  • Creditors may authorize lawyers, law firms, or legally permitted entities to provide debt recovery support services in compliance with the law, ensuring proper procedures and minimizing legal risks.

III. Common legal consultancy questions on debt recovery

1. Is it permissible to claim late payment interest in debt recovery?

Pursuant to Clause 1, Article 357 of the Civil Code 2015, in civil transactions, where an obligor delays payment, such obligor must pay interest on the late-paid amount corresponding to the period of delay.

Accordingly, where late payment or breach of payment deadlines occurs in respect of principal or interest, the creditor is entitled to request interest on the overdue amount for the relevant delay period. The applicable interest rate shall be as agreed by the parties but must not exceed 20% per annum. Where the parties have no agreement on the interest rate, or have agreed on the payment of interest without specifying the rate and a dispute arises, the interest rate shall be determined at 10% per annum.

2. May a creditor request the court to resolve a debt recovery dispute?

Creditors are fully entitled to initiate court proceedings to request the resolution of disputes relating to payment obligations where the debtor fails to perform or improperly performs its commitments.

Pursuant to Articles 26 and 35 of the Civil Procedure Code 2015, disputes concerning civil contracts, loan agreements, and sale and purchase of goods fall within the jurisdiction of the competent People’s Courts.

3. What are the responsibilities of the creditor?

In addition to the right to demand payment, creditors must also comply with certain legal obligations, including:

  • Providing clear evidence of the debt, such as contracts, receipts, and transaction records.
  • Following lawful debt recovery procedures and refraining from threats, insults, coercion, or engaging unlawful debt collection practices.
  • Respecting the debtor’s rights, including the right to present opinions, respond, and defend themselves before the court.
  • Taking liability for their conduct if they cause damage to others or violate the law (e.g., infringing honor or property rights).

4. Can a debt be recovered if the debtor no longer has the ability to pay?

Where the debtor no longer has the ability to repay the debt (due to financial insolvency, disappearance, or bankruptcy), recovery becomes more difficult but not impossible. Possible approaches include:

  • Renegotiating repayment terms, such as installment payments, extensions, or converting the debt into a secured obligation (pledge, mortgage, etc.).
  • Initiating court proceedings to obtain a judgment recognizing the repayment obligation, serving as a basis for enforcement when the debtor acquires assets in the future.
  • Requesting seizure of the debtor’s existing assets (if any) or claiming repayment from the debtor’s estate in the event of death.
  • In cases of corporate bankruptcy, creditors may request asset distribution in accordance with bankruptcy procedures under the Law on Bankruptcy 2014.

5. Should debt collection companies be engaged?

Under the Law on Investment 2020, traditional debt collection services have been prohibited since January 1st, 2021, as such activities are prone to abuse, legal violations, and even acts involving threats, coercion, or public disorder.

However, creditors may still lawfully authorize organizations or individuals with legal capacity, such as lawyers, law offices, or licensed legal practice organizations, to:

  • Draft and send payment demand letters;
  • Represent creditors in negotiations and dealings with debtors;
  • Participate in proceedings before courts and judgment enforcement authorities.

Engaging lawyers or professional legal services is both lawful and effective in protecting rights and resolving disputes. Creditors should strictly avoid using debt collection services without clear legal status, as they may incur criminal liability if violations occur.

IV. Legal consultancy services on debt recovery

The above constitutes the comprehensive information provided by NPLaw to support clients in matters relating to debt recovery. Should you have any questions regarding the above issues or other legal matters, please contact NPLaw for direct consultation and guidance from our professional team.