Debt Collection in Honduras

The debt collection in Honduras process should begin with a legal and practical assessment of the debtor, the debt and the available documents. At this stage, it is important to determine whether the debtor acts as a merchant, commercial company, individual or foreign counterparty with assets in Honduras, where the debtor’s actual or registered address is located, whether the debtor continues business activity, whether identifiable assets exist, and whether there are court cases, enforcement proceedings or signs of insolvency that may affect the recovery strategy.

The initial analysis should also verify the nature of the obligation: contract, supply of goods, provision of services, invoice, debt acknowledgment, account balance, guarantee, court judgment or arbitral award. In Honduras, this assessment is practically important because the appropriate route may depend on the amount of the claim, the documentary strength of the debt, the possibility of using payment order proceedings, the need for ordinary or abbreviated proceedings, the existence of a foreign title and the realistic prospects of enforcement against the debtor’s assets.

If there are no pending proceedings that make negotiations ineffective, the debtor continues commercial activity and the debt is sufficiently documented, an out-of-court stage may be started before going to court. This stage does not replace judicial analysis, but it helps test the debtor’s reaction, obtain a payment proposal, record the debtor’s position in writing and prepare a stronger evidentiary basis for the applicable procedure.

The out-of-court debt collection stage may include negotiations with the debtor to obtain full payment, partial payment, a payment schedule, return of goods, set-off of mutual claims, assumption of the debt by a third party or another commercial solution that does not weaken the creditor’s legal position.

In Honduras, this stage should be based on a clear and documented payment demand. Communication may be carried out by the means appropriate to the case, but the creditor should preserve the notice sent, proof of receipt, the debtor’s responses, payment proposals, acknowledgments of debt and details of the persons actually authorized to make decisions. This documentation may be important not only for negotiations, but also for proving the claim if judicial collection becomes necessary.

The usual operational period for informal out-of-court collection is up to 60 days, unless the parties agree on payment by installments or another documented solution. If the debtor does not respond, denies the debt without sufficient grounds, conceals information about assets or shows signs of insolvency, the creditor should proceed to judicial debt collection or to enforcement and insolvency measures depending on the available documents.

Before initiating judicial collection, the creditor should verify the limitation period applicable to the specific claim. In Honduras, personal actions for which no special term is established are time-barred after 10 years. There are also special limitation periods: actions to claim rent and other payments due annually or in shorter periods are time-barred after 2 years; certain collection claims are time-barred after 1 year, including the price of goods sold by merchants to persons who are not merchants or who, although merchants, carry out a different business activity.

The consequences of expiry of the limitation period apply at the debtor’s request. The limitation period may be interrupted by bringing the claim before the courts, by an out-of-court demand from the creditor or by any act of debt acknowledgment by the debtor. After interruption, the limitation period begins to run again.

Honduran law allows judicial debt collection to be structured through ordinary proceedings, abbreviated proceedings and payment order proceedings, depending on the amount of the claim, the nature of the obligation, the documentary strength of the debt and the debtor’s procedural conduct.

The ordinary proceedings begin by filing a statement of claim with the competent court. After checking the procedural requirements, the court decides whether to admit the claim, orders notification to the debtor and prepares the case for examination on the merits. This route applies, among other cases, when the amount of the claim exceeds 50,000 Honduran lempiras or when the economic value of the claim cannot be calculated even approximately. In ordinary proceedings, the parties must appear through legal professionals.

After admitting the claim, the court delivers a copy of the claim and its appendices to the debtor and grants a period of 30 days to submit a response. In the response, the debtor must state the grounds for opposing the creditor’s claims and raise the substantive objections considered applicable. The debtor must also admit or deny the facts stated by the creditor. The court may treat the debtor’s silence or evasive answers as tacit admission of facts that are detrimental to the debtor. The debtor may also accept one or more of the creditor’s claims, or part of a single claim.

If the time limit for response expires and the debtor, duly notified, does not enter the proceedings, the debtor is declared in default. The debtor’s failure to appear does not prevent the proceedings from continuing, and the absence cannot be treated as acceptance of the claims or acknowledgment of the facts, unless the law provides otherwise. The decision declaring default is notified to the debtor at the known address; if the debtor’s whereabouts are unknown, notification is made by public notice. After that, no further notifications are made to the defaulting debtor, except for the decision that ends the proceedings. The defaulting debtor may enter the proceedings at any time, accepting them in the state in which they stand, without reversal of procedural acts already completed.

After the response is filed or default is declared, the judge summons the parties to the preliminary hearing, indicating the date, day and time of the hearing. This hearing must take place within a period not exceeding 20 days from the judicial summons.

At the preliminary hearing, the judge first attempts to promote settlement between the parties in order to avoid unnecessary continuation of the proceedings. Without prejudging the future judgment, the judge may propose settlement formulas or solutions to the dispute. If the parties do not reach an agreement and do not accept a solution at this stage, the hearing continues with the examination of procedural defects raised by the parties, the precise delimitation of the claim and the defense, the identification of disputed facts and the proposal and admission of evidence.

If the parties agree on all facts and the dispute is reduced to a legal issue only, the preliminary hearing ends after the judge hears the parties on the disputed issue. The preliminary hearing may also close this stage when all evidence to be examined is documentary and has already been filed in the proceedings, or when the admitted evidence can be examined in the same hearing.

If other evidence must be examined, the court sets the date of the evidentiary hearing, which must take place within 2 months after the preliminary hearing, depending on the difficulty of its preparation. At the evidentiary hearing, the admitted evidence is examined and, before the hearing is closed, the parties present their final arguments. After the evidentiary hearing is concluded, judgment must be issued within 10 days and notified to the parties as soon as possible.

The abbreviated proceedings apply to cases in which the amount of the claim does not exceed 50,000 Honduran lempiras and to other matters assigned by law to this route. The proceedings begin by filing a claim, after which the court decides whether to admit it within 5 days.

If the claim is admitted, the judge indicates in the admission decision the date, day and time of the hearing. At least 10 days and not more than 20 days must pass between service of the summons and the hearing.

If the amount of the claim does not exceed 5,000 Honduran lempiras, participation of a legal professional is not mandatory. However, if one party is defended and represented by a legal professional, the other party must have equal defense and representation.

The debtor’s failure to appear does not prevent the case from being considered. If the debtor appears, the hearing begins with an attempt at settlement under the rules applicable to the preliminary hearing in ordinary proceedings. If no agreement is reached, the creditor maintains the claim and the debtor states the opposition. The parties then present and examine the relevant evidence and make their final statements before the court.

After the hearing is concluded, the court issues its decision within the applicable time limit.

The payment order proceedings apply when the creditor seeks only payment of a monetary debt that is due, enforceable and determined in amount, expressed in Honduran lempiras or another legally admissible currency, within the limit of 200,000 Honduran lempiras. This route is especially useful when the debt is supported by documents connecting the debtor with the obligation claimed.

The debt may be proven by documents signed by the debtor or bearing the debtor’s seal, mark, physical or electronic sign, as well as by invoices, delivery receipts, certificates, written communications or other documents commonly used to prove debts and credits in relationships of the same kind. Commercial documents showing a previous and continuing relationship between the creditor and the debtor may also be used.

To start the proceedings, the creditor files an application identifying the debtor, the known addresses, the origin and amount of the debt and the documents supporting the claim. If the amount of the debt is below 5,000 Honduran lempiras, participation of a legal professional is not mandatory for filing the payment order application.

If the court considers that the submitted documents meet the requirements or constitute sufficient initial proof, it orders the debtor to pay the creditor within 20 days or to appear and state in writing the reasons why the debtor believes that all or part of the claimed amount should not be paid. If the debtor neither pays nor files opposition, the court issues an enforcement order for the amount due.

If the debtor files opposition within the time limit, the dispute is finally resolved in ordinary proceedings or abbreviated proceedings according to the amount of the claim. In that situation, the creditor’s strategy should be adjusted to the available evidence, the content of the debtor’s opposition and the possibility of supporting the claim in adversarial proceedings.

The decision of the court of first instance may be appealed within 10 days from the date of notification of the decision. The appeal is considered in a court session with the participation of the interested parties. After the hearing is completed, the appellate court issues a decision within 10 days. The appellate court decision may be appealed to the Supreme Court of Honduras within 20 days from the date of notification of the contested decision. As a result of the review of the appeal, the Supreme Court issues a decision that comes into legal force from the moment it is announced and is not subject to appeal.

For a foreign creditor, the recognition and enforcement of foreign court judgments in Honduras may be an essential route when a final court judgment has already been issued outside the country. Foreign court judgments and other foreign judicial decisions that finally resolve the merits of a dispute, as well as arbitral awards issued outside Honduras, may have enforceable effect in the Republic under international treaties, rules of international judicial cooperation or agreements with the State of origin.

In the absence of an applicable international treaty or special international rule, a foreign title may be recognized if it meets the legal conditions: final effect in the State of origin, jurisdiction of the foreign court under Honduran rules of international jurisdiction, personal notification to the debtor or real protection of the debtor’s right of defense, authenticity of the decision, compatibility with Honduran public order and absence of conflict with a decision issued by a Honduran court.

Jurisdiction for recognition belongs to the Supreme Court of Justice of Honduras. The interested party submits a written application, the opposing party may present arguments and propose evidence within 5 days and, if evidence is admitted, it is examined at a hearing within a period not exceeding 10 days. The Supreme Court of Justice then issues a decision recognizing the foreign decision and granting it full effect, or refusing recognition; that decision is not subject to appeal.

Foreign arbitral awards may also be relevant for international debt collection in Honduras, especially when the contract contains an arbitration clause. Honduras is a party to the New York Convention of 1958, so a foreign arbitral award may serve as a basis for recognition and subsequent enforcement when the applicable requirements are met. In practice, before starting this route, it is important to verify whether the award is final, whether the relationship is commercial in nature, whether the State of origin is covered by the applicable regime and whether the debtor has enforceable assets in Honduras.

After the court decision becomes final, or after the foreign title is recognized when recognition is required, the creditor should initiate compulsory enforcement by filing an application identifying the debtor, the title on which enforcement is based, the amount claimed and the enforcement measures requested. If the creditor knows the debtor’s assets, they may be indicated in the application; if sufficient assets are not known, the creditor may request the court to apply asset identification measures.

In enforcement for a monetary claim, the claimed amount should include the legal and applicable interest accrued by the time of filing and may be increased by up to 25% to cover interest and costs arising during enforcement. The enforcement order should accurately indicate the person against whom enforcement is directed, the amount for which enforcement proceeds, the measures ordered, seizure of assets, measures for identifying the debtor’s property and other details necessary for the enforcement process.

As part of enforcement of a court decision, the creditor’s claims may be satisfied through seizure of funds in the debtor’s accounts, seizure and sale of movable or immovable property, measures affecting securities, dividends, property rights and financial instruments, as well as measures of administration, intervention or preservation of assets where applicable. The practical purpose of this stage is to turn the enforceable title into actual recovery by identifying assets, securing them and applying them to payment of the debt, interest and costs.

If the debtor shows signs of insolvency, the creditor should assess the possibility of measures related to bankruptcy. In Honduras, this route is mainly connected with a debtor engaged in commercial activity and with situations of cessation of payments. Bankruptcy may be declared at the request of the debtor, one or more creditors, the public prosecutor or in other cases provided by law. If the application is filed by creditors, it is necessary to prove that the debtor is a commercial debtor and is in a state of cessation of payments.

Bankruptcy should not be viewed only as a pressure tool against the debtor. Its practical purpose is to protect and gather the assets available for creditors. This route may be relevant when the debtor fails to pay liquid and overdue obligations, does not have sufficient assets to settle debts, closes business premises, conceals asset information or has carried out transactions reducing the property available for payment.

In the case of companies, bankruptcy may have additional consequences. Bankruptcy of a company may cause members with unlimited liability to be treated as bankrupt for all relevant purposes, while the respective liquidation processes remain separate. Commercial companies in liquidation and irregular companies may also be declared bankrupt. Bankruptcy of an irregular company may lead to bankruptcy of members with unlimited liability and of those members in relation to whom it is proven that, without objective grounds, they were considered to have limited liability.

At this stage, if the debtor’s assets are insufficient to fully satisfy creditors’ claims, particular importance is given to reviewing acts carried out before the declaration of bankruptcy or from the date to which its effects are retroactive. Acts knowingly carried out by the bankrupt debtor in fraud of creditors’ rights are ineffective against the bankruptcy estate if the third party involved knew of the fraud. This requirement of knowledge is not necessary for acts made without consideration.

Acts and transfers without consideration carried out from the retroactive date, transactions for consideration in which the value received by the bankrupt debtor is clearly lower than the value provided, and payments of debts or obligations not yet due made in money, securities or any other form are also presumed to have been carried out in fraud of creditors, without admission of evidence to the contrary. In addition, payments of due debts made in a form different from that corresponding to the nature of the obligation, and the creation of real rights over the bankrupt debtor’s property to secure prior obligations when such security had not been previously agreed, may be presumed fraudulent unless good faith is proven.

The practical consequence of ineffectiveness against the bankruptcy estate is that the corresponding assets, amounts, liquid proceeds or interest may return to the estate intended to satisfy creditors and cover the costs of the bankruptcy procedure. If the assets involved in the challenged act have already left the property of the person who received them and have been acquired by a third party in good faith, damages may be claimed from the first acquirer unless that person proves good faith. The same responsibility may apply to a person who destroys or conceals assets to avoid the effects of restitution.

If you need support with international debt collection in Honduras, Grandliga can assist at every stage of the process: analysis of the debtor and documents, preparation of an out-of-court payment demand, selection between ordinary proceedings, abbreviated proceedings and payment order proceedings, recognition and enforcement of foreign titles, initiation of compulsory enforcement against the debtor’s assets and assessment of measures related to bankruptcy. Contact us to analyze your case and define a legal strategy based on the debt, the available documents, the location of assets and the debtor’s conduct.

# DEBT COLLECTION AGENCY HONDURAS

23.08.2024

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