Debt Collection in Costa Rica

The debt collection process in Costa Rica begins with a legal, financial and evidentiary assessment of the debtor. At this stage, it is important to determine whether the debt is civil or commercial, whether the debtor is actually operating, what business history exists, and whether the creditor has contracts, invoices, delivery documents, acknowledgements of debt, business correspondence, partial payment records and other evidence proving the origin, amount and due nature of the obligation.

In Costa Rica, the initial assessment should also include verification of registry information that may be useful for the recovery strategy. If the debtor is a company, it is important to check its registration details, representatives, address, business activity and significant corporate changes. If there are indications of enforceable assets, information connected with the National Registry of Costa Rica may be reviewed, including real estate, movable assets, legal entities and security interests. This helps determine whether the creditor should begin documented negotiations, file a court claim, use a payment order procedure, request seizure of assets, enforce an existing title or evaluate insolvency proceedings.

If there is no pending dispute over the same debt, the debtor continues to operate, the contact details are verifiable and the creditor’s documents are sufficient to prove the obligation, an out-of-court stage can usually be initiated. This stage does not replace court proceedings, but it helps clarify the debtor’s real position, obtain voluntary payment, record a written acknowledgement of debt or prepare a stronger evidentiary basis for later recovery.

The out-of-court stage is based on documented negotiations with the debtor. The creditor may seek full payment, partial payment, a payment schedule, return of goods, set-off, assumption of the debt by a third party or another commercial solution that does not weaken the legal position for a later court claim.

Communication with the debtor should be lawful, verifiable and proportionate: a written payment demand, postal notice, email, telephone contact, communication through channels used by the parties or communication through representatives. The purpose is not informal pressure, but confirmation of who makes decisions for the debtor, clarification of the debtor’s position, obtaining a documented response, recording a possible acknowledgement of debt and preserving evidence for court proceedings.

If the debtor does not pay, denies the debt without sufficient grounds, avoids communication, breaches an agreed payment schedule, transfers assets or shows signs of financial insufficiency, the creditor should consider moving to judicial debt collection or using other recovery measures available under Costa Rican law.

Before starting court action, the creditor must determine the limitation period applicable to the specific claim. For civil claims, the general rule provides a ten-year period, unless the law establishes a special exception. For commercial claims, the general rule provides a four-year period, but shorter periods may apply to certain claims, including some claims for interest, rent, lease payments or periodic payments. Therefore, in debt collection in Costa Rica, it is not enough to confirm that the debt exists; it is also necessary to classify the obligation as civil, commercial, periodic, accessory, documented by a title or subject to a special rule.

The consequences of limitation in commercial matters are not applied by the court on its own initiative; they must be raised by the interested party. The limitation period may be interrupted, among other cases, by a court claim or judicial demand notified to the debtor, by a judicial, notarial or written demand properly notified, by an express or implied acknowledgement of debt and, depending on the case, by proven payment of interest. In civil matters, the limitation period may also be interrupted by acknowledgement of debt, judicial summons, seizure of assets or judicial or out-of-court collection actions.

After interruption, the limitation period begins to run again.

Costa Rican law allows debt claims through ordinary court proceedings, summary proceedings in cases provided by law, a payment order procedure for liquid and due monetary obligations supported by documents, and enforcement where there is already a judgment, title or document allowing the creditor to move to compulsory recovery.

In court hearings, the parties must act with the assistance of a lawyer, unless they are legal professionals themselves. Written procedural documents require lawyer authentication. If this requirement is not met, the court may grant the legally established period to correct the defect or confirm the document in writing; otherwise, the relevant filing may be left without consideration. For a foreign creditor, this means that the claim, procedural applications and evidence must be prepared in a form compatible with the requirements of Costa Rican courts.

Civil proceedings in Costa Rica are conducted in Spanish. Documents prepared in another language must be accompanied by a translation. If a foreign creditor has a contract, invoice, acknowledgement of debt, power of attorney, foreign judgment or correspondence in another language, this issue should be resolved before filing with the court so that the evidence can be used properly in the proceedings.

Ordinary court proceedings apply to claims for which the law does not provide a special procedure. The process begins with filing a claim before the competent court. If the claim meets the legal requirements, the defendant is served with a court notice and is given a mandatory period of thirty days to file a response and, where appropriate, a counterclaim.

The defendant must respond in writing to all facts stated in the claim, in the same order in which they were presented, explaining with reasons whether they are admitted or denied. The defendant must also clearly state their position on the claims, the legal grounds of the defence and their position on the evidence submitted and proposed by the claimant.

If the defendant does not properly respond to the facts, the court may indicate the deficiencies that must be corrected within five days. If they are not corrected, the facts that did not receive an adequate response may be considered admitted.

If the defendant does not file a response, files it late or admits the claim, the court may consider the facts stated by the claimant as proven, unless they are contradicted by the evidence in the file. In such cases, an early judgment may be issued without further procedural steps, provided there are no procedural circumstances preventing such a decision.

After receiving the response, if there are no procedural issues requiring an interim decision, the court may schedule a preliminary hearing. At this hearing, the court informs the parties of the object of the proceedings, attempts conciliation, clarifies the claims, resolves procedural objections, determines the amount in dispute, defines the evidentiary issues, admits evidence and decides whether a supplementary hearing is necessary.

If, because of the nature of the case, there is no evidence to be taken or no reason to hold a supplementary hearing, the parties may present their conclusions at the end of the preliminary hearing, and the judge may issue a judgment.

When a supplementary hearing is necessary, it must be held within twenty days after the preliminary hearing, unless there is a reason for a longer period. At that hearing, evidence is taken, the parties’ conclusions are heard, deliberation takes place and judgment is issued.

The payment order procedure is an important route for recovering monetary debts in Costa Rica, but it does not apply to every claim. It is available for monetary obligations that are liquid and due, supported by public or private documents, whether or not the document itself has enforceable force. Before choosing this procedure, the creditor must verify that the document reliably identifies the debtor, the origin of the obligation, the amount claimed and the fact that payment is due.

The document supporting the claim may be an original, a signed copy or another medium from which the debtor can be reliably identified by signature or an equivalent mark. If the creditor submits a document with enforceable force, the court may, upon request, order seizure of assets for the principal amount claimed and accrued interest, plus an additional fifty per cent to cover future interest and court costs. If the document does not have enforceable force, a protective measure may depend on providing the corresponding security.

If the court finds that the request meets the procedural requirements, it issues a payment order and gives the debtor five days to pay or object. If the debtor admits the claim, does not object within the time limit or submits an unfounded objection, the order may be enforced without further proceedings.

The debtor’s objection in the payment order procedure for monetary obligations is limited to specific grounds: falsity of the document, lack of due payment status of the obligation, payment proven in writing or expiration of the limitation period. If the objection is justified, an oral hearing is scheduled under the rules of summary proceedings. The judgment decides whether the payment order is confirmed or revoked. If the objection is upheld, the creditor may request conversion of the payment order procedure into ordinary court proceedings under the applicable rules.

Court decisions may be challenged only by the remedies and in the cases expressly provided by law. In civil matters, an appeal is not available against every court decision, but only against decisions for which this remedy is allowed. Where a judgment is appealable, the time limit for filing an appeal is five days. The second-instance court may review the formal admissibility of the appeal, issues of procedural invalidity and the specific points challenged, and may hold an oral hearing if evidence has been admitted or if it is procedurally appropriate.

A cassation review is not an automatic third instance for every debt dispute. It is available for judgments issued in ordinary proceedings involving higher-value claims or claims whose value cannot be determined, as well as in other cases expressly provided by law. The time limit for filing is fifteen days. The filing must identify the case, the legal provisions allegedly violated or incorrectly applied and the specific grounds of challenge. The decision issued at this level is not subject to a further ordinary appeal.

In cases involving recognition and enforcement of foreign judgments or foreign arbitral awards, the creditor must first obtain recognition in Costa Rica so that the decision can produce effects within the country. This usually requires an authenticated copy of the foreign decision, compliance with applicable diplomatic or consular requirements, an official translation if the decision is in another language, proof that the defendant was properly served in the original proceedings, absence of exclusive jurisdiction of Costa Rican courts, a connection with Costa Rica, compatibility with national public order and absence of pending proceedings or a final judgment in Costa Rica on the same matter.

Recognition is handled by the competent court at the cassation level according to the subject matter and is processed through an incidental procedure. If recognition is granted, the decision is sent for enforcement to the court of the place where the debtor is domiciled. If the debtor is domiciled outside Costa Rica, the competent court is the one chosen by the applicant. If the debtor’s address is unknown, a procedural representative may be appointed, and the debtor may join the case at the stage in which the proceedings are found.

After a judgment, recognised foreign decision or enforceable title can be enforced, the creditor should initiate the judicial enforcement stage. Where enforcement concerns payment of a liquid and due monetary amount, the court may order seizure of the debtor’s assets for the principal amount claimed and accrued interest, plus an additional fifty per cent to cover future interest and court costs.

In practice, enforcement may target wages to the extent permitted by law, rent and other periodic income, deposits, bank accounts, securities, movable assets, real estate, registered rights, negotiable assets and other property subject to seizure. Seizure of deposits, accounts, securities or periodic income is communicated by the fastest available means, and the person or entity receiving the court order must comply with it and transfer the relevant sums or assets in the required manner. Where seizure concerns property or rights subject to registration, the court records the seizure in the relevant registry, and the measure is considered completed from the moment of that record.

If seized assets must be converted into money, enforcement proceedings may continue through forced sale, auction or early sale where there is a risk of disappearance, deterioration, loss of value or difficult or costly preservation. Therefore, in debt collection in Costa Rica, it is important to identify registered assets, accounts, periodic income and other recoverable assets in advance, because a favourable judgment has practical value only if it can be converted into actual recovery.

If the debtor shows signs of financial insufficiency, the creditor should assess whether to initiate or participate in insolvency proceedings. In Costa Rica, modern insolvency legislation replaced traditional references to bankruptcy, insolvency and civil creditor proceedings with a unified insolvency regime with its own stages and effects. The procedure may be requested, among others, by the debtor or by creditors, and its opening changes the way claims are filed and enforced.

An application filed by the debtor must clearly, in detail and in chronological order explain the causes of current or imminent financial insufficiency, include an inventory of tangible and intangible assets, indicate encumbrances, registry records, disputes, ongoing enforcement actions, creditors, debtors, employees and other relevant financial information. For the creditor, these elements are important for assessing whether real recovery is possible, whether individual enforcement should continue or whether the claim should be handled within the insolvency procedure.

The opening of insolvency proceedings may directly affect the recovery strategy. Judicial or arbitral cases started before the opening of the procedure and not aimed directly at monetary collection may continue until their final conclusion. However, debt collection cases and monetary enforcement actions against the debtor’s assets become subject to the insolvency regime. After the opening of the procedure, new monetary claims and enforcement actions must also comply with the rules of the insolvency process.

Where the debtor’s assets are insufficient, analysis of transactions harmful to the collective interests of creditors becomes especially important. Insolvency legislation allows challenges to acts that are void or ineffective under general rules and also provides for specific cases where acts cannot be relied on against the insolvency estate. Gratuitous acts carried out by the debtor within two years before the application to open proceedings are generally not enforceable against the estate, except for certain reasonable remunerative gifts or acts consistent with custom that are not disproportionate.

Certain acts carried out within one year before the application to open proceedings may also be unenforceable against the estate, unless it is proven that they did not harm the collective interests of creditors. These include the creation or increase of real or fiduciary security over the debtor’s assets in favour of pre-existing obligations or new obligations replacing them, payment of obligations not yet due at the time of the application, and payment or modification of liquid and due monetary obligations through different assets where this does not correspond to ordinary practice or the agreement between the parties.

In addition, a claim may be brought to declare ineffective against the estate other acts disposing of assets carried out within five years before the application to open proceedings, if they harmed the collective interests of creditors and the debtor knew or should have known of their harmful effect. In transactions for value, it must also be assessed whether the counterparty knew or should have known of that harm. If a recognised creditor successfully brings such a claim, that creditor may obtain a preferential right over the recovered assets or rights up to fifty per cent of the balance of the claim, as well as reimbursement of the costs of the proceedings.

If you need support with debt collection in Costa Rica, we can analyse the debtor and its assets, review contracts, invoices, correspondence and debt acknowledgement documents, prepare an out-of-court strategy, coordinate court proceedings, assist with the payment order procedure or ordinary court proceedings, support the enforcement stage, assess recognition of a foreign judgment or arbitral award and handle situations connected with insolvency proceedings. The strategy is defined according to the nature of the debt, the limitation period, the quality of evidence, the location of assets and the debtor’s conduct.

# DEBT COLLECTION AGENCY COSTA RICA

03.09.2024

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