Debt collection in Brazil

The debt collection process in Brazil begins with an assessment of the debtor’s solvency, its business sector, the history of the business, the availability of documentary evidence of the debt, current court cases and enforcement proceedings, and the possibility of disputing the debt. This assessment determines the strategy that will be used on behalf of the client in the collection process.

If the debtor has no current court cases or outstanding judgments for debt collection and is actively engaged in commercial activities, it is advisable to use the out-of-court debt collection stage.

This stage involves negotiations with the debtor aimed at reaching an agreement on payment of the creditor’s claim or selecting another lawful settlement method. Depending on the circumstances, this may include a payment schedule, return of goods, assignment of the claim, transfer of the debt to a third party, set-off of mutual obligations, or another form of performance that actually protects the creditor’s interests.

Interaction with the debtor should begin after sending an out-of-court notice by a method that allows the creditor to prove both the fact of sending and the content of the demand. At this stage, it is important not only to negotiate, but also to record the debtor’s position, acknowledgement of the debt, payment proposals, refusal to pay or attempts to avoid contact. Communication should be firm and documented, but legally correct, without actions that could be interpreted as unlawful pressure, threats or abuse of rights.

In Brazil, before filing a lawsuit, the creditor may also assess the possibility of formal protest registration of debt instruments. This mechanism is used to formally record non-payment of a monetary obligation and may be useful when the creditor has a document confirming the amount, basis and due date of the debt. Formal protest registration does not automatically replace court collection, but it can strengthen the creditor’s position, accelerate negotiations and prepare the evidentiary basis for further action.

The practical duration of the out-of-court stage depends on the debtor’s behavior, the quality of the documents and the parties’ willingness to reach a settlement. If the debtor does not respond, avoids contact, disputes the debt without sufficient grounds or there is a risk of asset dissipation, the creditor should proceed to court collection or another legal mechanism for protecting the claim.

Before initiating court collection, it is necessary to determine the limitation period applicable to the debt. Under Brazilian civil law, the general limitation period is 10 years when the law does not provide a shorter period. However, for many claims involving the collection of certain monetary debts evidenced by a public or private document, the limitation period is 5 years. Therefore, before starting proceedings, the creditor should assess the type of document, the due date of the obligation, partial payments, acknowledgement of the debt by the debtor and other facts that may affect the running of the limitation period.

Brazilian law provides several types of court debt collection, and the choice of procedure depends mainly on the evidentiary strength of the creditor’s documents. If the creditor has a document that allows direct compulsory enforcement, an enforcement procedure may be used. If the creditor has written evidence of the debt, but that evidence does not have immediate enforcement force, a special procedure based on written evidence may be appropriate. If the existence, amount or enforceability of the debt requires a broader examination of the dispute, the ordinary court procedure is used.

A party in court is generally represented by a lawyer who is duly authorized to practise in Brazil. Self-representation is possible only where procedural rules allow it and the party has the required legal qualification. For a foreign creditor, legal representation is especially important because the court assesses not only the existence of the debt, but also the form of the documents, translation, calculation of the amount, evidence of delivery of goods, provision of services or another basis for the debt.

The ordinary court procedure begins with filing a claim before the competent court. If the claim meets the procedural requirements, the court arranges service on the defendant and the further movement of the case. After service, the case may pass through a settlement or mediation stage, submission of the defense, preparation for trial, examination of evidence and judgment. The duration of this stage depends on the method of service, the debtor’s location, the need for cross-border cooperation, the volume of evidence and the conduct of the parties.

The defendant may submit a defense within 15 days, with the starting point determined by procedural rules. In the defense, the defendant must present all arguments, state the factual and legal grounds for disputing the creditor’s claim, identify the evidence to be produced and respond specifically to the factual allegations in the claim. Facts that are not specifically challenged may be considered admitted by the court, unless this conflicts with the case file or with exceptions established by law.

If the defendant does not submit a defense, the court may continue the proceedings taking into account the consequences of the defendant’s procedural inactivity. If a defense is submitted, the court identifies the disputed issues, allocates the burden of proof, decides procedural applications and, where necessary, schedules a hearing. At the hearing, the court may hear the parties, witnesses and experts, and examine documents and other evidence. After the examination of the case is completed, the court issues a judgment.

The special procedure based on written evidence applies when the creditor has a written document proving the debt, but that document does not allow immediate compulsory enforcement. This procedure may be useful where there is a contract, acknowledgement of debt, invoice, correspondence, commercial document or other written basis from which the court can make an initial assessment that the obligation exists.

To start the procedure, the creditor files an application with the court and attaches documents proving the basis and amount of the claim. If the court considers that the legal requirements are met, the debtor is ordered to perform the obligation or submit an objection within the statutory period. If the debtor neither pays nor objects, the court document may become a basis for further compulsory enforcement. If the debtor submits an objection, the dispute is examined with consideration of both parties’ arguments, and the creditor may respond to the debtor’s position.

Improper or bad-faith use of this procedure may lead to procedural sanctions. For this reason, the creditor should initiate it only when adequate written evidence is available, while the debtor should not use objections merely to delay debt recovery without substantive grounds.

A judgment of the court of first instance may be appealed in accordance with Brazilian procedural rules. The court of second instance examines the grounds of appeal and may uphold, modify or annul the judgment in whole or in part. The judgment becomes final when the time limits for further challenge expire, when the parties do not use further available remedies, or when the review mechanisms allowed by law have been exhausted.

Further review by higher courts in Brazil is not an automatic stage in every debt collection dispute. If the issue concerns the interpretation of federal law, a special appeal may be submitted to the higher court responsible for the uniform application of federal legislation. If the case involves a relevant constitutional issue, an extraordinary appeal may be submitted to the Federal Supreme Court of Brazil. These remedies are not intended for a complete re-examination of the facts, but operate within specific legal grounds.

If the creditor already has a foreign court judgment against the debtor, debt recovery in Brazil may require recognition of that foreign judgment by the competent Brazilian judicial authority. The review usually covers the jurisdiction of the authority that issued the judgment, proper notice to the debtor, effectiveness of the judgment in the country of origin, absence of conflict with a final Brazilian judgment, official translation where required, and compliance with Brazilian public order. After recognition, the foreign judgment may be enforced before the competent federal court.

After the judgment becomes enforceable, the creditor should initiate the compulsory enforcement procedure. In the enforcement of a monetary judgment, the debtor is ordered to pay within 15 days. If voluntary payment is not made within the required period, a ten percent fine and ten percent legal representation fees may be added to the debt, and the creditor may request measures against the debtor’s assets.

If the debtor does not pay voluntarily, the creditor may request the search, freezing, seizure, valuation and sale of the debtor’s assets. The effectiveness of enforcement depends on whether it is possible to identify bank accounts, financial assets, real estate, vehicles, company interests, income and other property rights of the debtor.

In Brazil, electronic judicial tools may be used to search for and freeze financial assets. These tools allow court orders to be transmitted to financial institutions, asset information to be obtained and freezing measures to be applied. If the debtor operates through companies or related structures, it is also important to analyze signs of asset dissipation, simulated transactions, transfers to third parties and abuse of the corporate structure.

If the debtor is an entrepreneur or a business company and shows legally relevant signs of insolvency, the creditor may assess the possibility of filing for bankruptcy. This mechanism is not suitable for every debt or every debtor, but it may be relevant where the default is documented, the debtor conducts business activity, has assets and avoids performance of its obligations.

Bankruptcy may be requested, among other cases, when the debtor, without a relevant legal reason, fails to pay at maturity a monetary obligation evidenced by one or more formally protested enforceable documents whose total amount exceeds the equivalent of 40 minimum wages on the filing date; when, in monetary enforcement proceedings, the debtor does not pay, does not deposit the amount and does not identify sufficient assets for seizure; or when the debtor performs acts indicating fraud against creditors, simulated transactions, rapid liquidation of assets, irregular transfer of a business or attempts to delay payments.

For the creditor, bankruptcy should be assessed as a strategic tool, not as an automatic replacement for ordinary debt collection. In some cases, compulsory enforcement may be more effective; in others, the special procedure based on written evidence, ordinary court proceedings, participation in a restructuring proceeding or filing the claim in the list of creditors may be more appropriate. The choice depends on the amount of the debt, the quality of the documents, the existence of formal protest registration, the debtor’s assets and the probability of obtaining actual recovery.

In bankruptcy, certain acts performed before the opening of the procedure may be treated as ineffective against the creditors’ estate. This may include payment of debts not yet due, payment of overdue debts by a method not provided for in the contract, granting security for pre-existing debt, gratuitous transactions carried out within two years before bankruptcy, and certain transfers of a business without adequate protection of creditors.

In addition, acts performed with the intention of harming creditors may be revoked when fraudulent collusion between the debtor and the third party is proven and there is damage to the creditors’ estate. The revocation claim may be filed by the bankruptcy administrator, any creditor or the public prosecutor within 3 years from the declaration of bankruptcy. This mechanism is especially important when the debtor has transferred assets to related parties, emptied the estate or artificially created an inability to satisfy creditors.

Bankruptcy may also affect partners with unlimited liability, managers and other persons involved in acts harmful to creditors. Therefore, where there are signs of concealment of assets or abuse of a corporate structure, the recovery strategy should include analysis of corporate documents, asset transactions, related companies, prior transfers of property and management conduct before insolvency.

Debt collection in Brazil requires document analysis, selection of the appropriate procedure, verification of the limitation period, asset search and assessment of the practical options for action against the debtor. The Grandliga team is competent in international debt recovery cases and can provide legal assistance in case analysis, strategy preparation, negotiations with the debtor, recognition of foreign court judgments, support in court proceedings and compulsory enforcement of decisions in Brazil.

13.09.2024

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