Judicial Payment Process

About Judicial Payment Process

It is important to clarify the concepts of debt and collection to better understand the concept of a judicial payment.

A debt is the obligation of a person or business to pay for a product or service within a specified period of time, while a collection is the process by which a person or company seeks to recover money for the purchase of a product it sold or for a service it rendered.

A judicial payment is usually a last resource that a person or company uses in order to recover a pending debt. It consists of a demand (lawsuit) to the debtor before a local court because it hasn’t paid in the agreed timeframe or conditions.

When to start a judicial payment process?

You should start a judicial payment process when the commercial or contractual relationship between companies or between individuals breaks or breaches the agreements of quality, efficiency and full payment guarantees.

In some cases, the payment of the debt may not be collected because the debtor doesn’t have funds or assets. In Panama, there is no such thing as prison for debt, which is the reason why it is important to maintain adequate documentation to enable debt recovery.

Such documents can be invoices, certificates or any other documents that establish a commercial relation, all of them signed by the debtor.

A company or individual who wants to pursue a judicial payment process needs to consider that

  • The debtor must be reluctant to pay
  • The location of the debtor must be known
  • There must exist goods susceptibles to embargo, under the name of the debtor

There is no specific timeframe that indicates when to start a judicial payment, but it usually begins 90 days after the agreed payment terms have expired.

Panama law establishes a preventive collection timeframe which starts before the debt expiration date. The law also provides an extrajudicial collection timerame, which starts 21 days after the debt has expired. Only afterwards it is possible to file for a judicial payment process.

If the debt is paid with its respective interest and fees, the judicial payment process ends immediately and all the judicial actions that existed against the debtor disappear, but if they are not paid there can be serious consequences for the debtor. In order of execution:

  • Asset Freezing: A court expert visits the debtor’s location and takes note of all assets. At this point the debtor has no right to use or dispose of the assets
  • Withdrawal/Removal of goods: Assets will be taken by the court expert to proceed to their auction.
  • Goods auction: The debtor’s belongings will be sold to the highest bidder to pay off the debt. The sale is carried out by the auctioneer appointed by the relevant court.
  • Commercial bulletin: Name and debts will be registered in commercial bulletins and the debtor will not be eligible to receive credit, have a bank account, obtain a credit card and so on for at least five years.

Kraemer & Kraemer can assist you to file the appropriate lawsuit, claim the debt and request that expenses incurred by the trial be borne by the debtor. Contact us at info@kraemerlaw.com

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