Debt collection in El Salvador

Debt collection in El Salvador should begin with a legal, financial and evidentiary assessment of the debtor. At this stage, it is necessary to verify the debtor’s exact identity, address, commercial activity, available public registry information, ongoing court or enforcement proceedings, possible signs of insolvency and the quality of the documents proving the debt. If the debtor is a Salvadoran company, it is also important to check its registration details, representatives and current registry status, because proper identification affects notification, filing of the claim and later enforcement.

For a foreign creditor, the initial assessment should not be limited to confirming that an invoice remains unpaid. It is necessary to determine whether the claim arises from a contract, delivery of goods, provision of services, acknowledgment of debt, negotiable instrument, foreign court judgment or arbitral award. This qualification affects the choice between negotiations, judicial debt collection, executive proceedings, payment order proceedings, recognition of a foreign title or measures connected with the debtor’s bankruptcy.

If the debtor continues commercial activity, has verifiable contact details, does not show obvious signs of insolvency and the creditor’s documents make it possible to prove the origin, amount and due status of the debt, the first practical step may be a well-documented out-of-court stage. This stage helps to test the debtor’s real position, obtain voluntary or partial payment, record the debtor’s attitude to the claim and prepare a stronger evidentiary basis for later court proceedings.

The out-of-court stage may include direct negotiations, sending a written payment demand, clarifying the reasons for non-payment and seeking a solution that can be documented. Depending on the circumstances, the arrangement may involve full or partial payment, a payment schedule, return of goods, set-off of mutual claims, transfer or assumption of the debt by a third party, or another commercial solution that does not weaken the creditor’s legal position.

In El Salvador, this stage should be based on evidence, consistency and the ability to prove each important contact with the debtor. The creditor should keep the notice sent, proof of receipt, the debtor’s replies, payment proposals, acknowledgments of debt, messages from decision makers and any documents confirming the existence of the obligation. These materials may be relevant if it later becomes necessary to use payment order proceedings, executive proceedings or judicial debt collection.

If negotiations do not produce a practical result, the debtor denies the debt without sufficient grounds, hides information about assets, stops responding or signs of insolvency appear, the creditor should proceed to judicial recovery, enforcement measures or procedures connected with bankruptcy, depending on the nature of the available documents.

Before initiating legal action, the creditor should determine the limitation period applicable to the specific claim. Under Salvadoran civil law, the general period is 10 years for executive actions and 20 years for ordinary actions. If ordinary and executive actions exist at the same time in relation to the same obligation, the limitation period for the ordinary action runs together with the executive action, so after the 10-year period for the executive action expires, the ordinary action remains available only for another 10 years. Limitation is not applied by the court automatically and must be invoked by the party wishing to rely on it.

Special limitation periods may also apply. For claims to recover the price of goods sold at retail by merchants, suppliers and artisans, the limitation period is 2 years. In commercial matters, separate commercial limitation periods may apply: for example, certain claims arising from commercial contracts may expire after 2 years, while claims arising from credit agreements and other commercial rights may expire after 5 years from the debtor’s last acknowledgment of the obligation.

The limitation period may be interrupted by the debtor’s express or implied acknowledgment of the obligation, including written acknowledgment, partial payment, a request for an extension or an installment payment agreement. It may also be interrupted by filing a court claim. For short limitation periods, the existence of a written obligation, granting of a payment term or a judicial demand may lead to application of the relevant general limitation regime.

El Salvador law allows judicial debt collection to be structured through different routes depending on the amount of the claim, the evidentiary strength of the documents and the type of obligation. For disputed claims, the main routes are ordinary proceedings and abbreviated proceedings. If the creditor has a document showing a due, determined or calculable payment obligation, executive proceedings may be available. For monetary debts that are determined, due and payable within the statutory limit, payment order proceedings may also be used.

Executive proceedings are especially important when the debt is supported by a document that allows the creditor to request payment in a more direct way. In the executive claim, the creditor must attach the title on which the claim is based and the documents allowing the amount claimed to be determined precisely. If the court recognizes the creditor’s standing and the enforceable nature of the title, it may allow the claim to proceed, order attachment of assets and take the necessary measures to secure payment of the debt, interest and costs claimed.

Ordinary proceedings apply to claims exceeding 25,000 Salvadoran colones or the equivalent amount in United States dollars, as well as to disputes whose economic interest cannot be estimated even approximately. In civil and commercial proceedings, the parties must act through a legal representative chosen from lawyers of the Republic, without which the case will not proceed.

The procedure begins by filing a claim before the competent court. If the claim meets the procedural requirements, the court admits it and orders notice to be served on the defendant, who must answer within 20 days. In the answer, the defendant may deny the facts stated by the claimant, set out the reasons for opposing the claim, raise procedural or substantive objections and, where permitted, bring a counterclaim.

The court may treat the defendant’s silence or evasive answers as implied admission of facts known to the defendant and unfavorable to the defendant’s position. However, failure to appear does not by itself amount to acceptance of the claim or recognition of the facts stated in the claim. A declaration of non-appearance allows the case to continue; that decision is notified to the defendant, and after that, further notices are generally not served except for the decision ending the proceedings.

After the initial procedural steps have been completed, or after the relevant time limits have expired, the judge summons the parties to a preparatory hearing within 3 days. This hearing must take place within no more than 60 days from the court summons. Its purpose is to attempt settlement, correct procedural defects, define the claim and the matters to be proved, and propose and admit the evidence that the parties will use to support their positions.

If the parties do not reach an agreement, the case moves to the evidentiary stage. Facts admitted or agreed by both parties are excluded from further proof. For disputed facts, the parties propose the evidence they consider necessary, and the court sets the date of the evidentiary hearing within 60 days after the preparatory hearing, taking into account the complexity of preparation and the possible need for more than one session.

After the evidence has been examined and the parties have made their final arguments, the judge declares the hearing closed. The judgment must be issued within 15 days after the evidentiary hearing is completed and notified to the parties within no more than 5 days from the date of the judgment.

Abbreviated proceedings apply to claims not exceeding 25,000 Salvadoran colones or the equivalent amount in United States dollars, as well as to certain matters that the law assigns to this route because of their subject matter. This procedure begins with a simplified claim, which must identify the court, the parties, addresses for service, the facts supporting the claim and the creditor’s specific request.

If the claim is admitted, the judge states the day and time of the hearing in the same decision. At least 10 days and no more than 20 days must pass between service of the summons and the actual hearing. The hearing is held on a single summons, and the parties must attend with the evidence they intend to use.

The defendant’s unjustified failure to appear does not prevent the hearing from taking place. The judge first attempts to help the parties reach a settlement. If no settlement is reached, the claimant confirms, expands or reduces the claim without substantially changing its content, while the defendant answers the claim, raises procedural defects, admits or denies facts, challenges the legal grounds and, where permitted, brings a counterclaim.

After the parties’ submissions, useful and relevant evidence is proposed and examined, and the parties then make their final arguments orally. At the end of the hearing, the judge may issue judgment immediately if possible. If the judgment is not issued at once, the judge must announce the decision orally and issue the written judgment within 15 days after the hearing is completed.

Payment order proceedings apply to the collection of a monetary debt that is determined, due and payable, where the amount claimed does not exceed 25,000 Salvadoran colones or the equivalent amount in United States dollars. The creditor must provide sufficient preliminary evidence through documents proving the relationship between creditor and debtor. Even if the document was created unilaterally by the creditor, it should bear the debtor’s signature, show that the signature was placed by the debtor’s order or include another mechanical or electronic sign linking the debtor to the obligation.

If the request meets the legal requirements, the court orders the debtor to pay within 20 days directly to the creditor or to the court, or to appear and file an objection. If the debtor neither pays nor objects within the time limit, the court orders attachment of sufficient assets and the case continues under the rules for enforcement of judgments.

If the debtor appears within the time limit and files an objection, the dispute continues under the rules of abbreviated proceedings, and the judgment issued has the effect of a final judgment. In that situation, the applicant must file the claim within the relevant legal time limit so that the claim can continue through the appropriate judicial route.

A first-instance judgment or decision that is subject to challenge may be contested by appeal. The appeal must be filed before the judge who issued the contested decision no later than 5 days from the day following notification of the decision. The appeal must clearly set out the grounds of challenge, including issues relating to the application of law, determination of facts, assessment of evidence and possible procedural violations.

After the appeal is filed, the court notifies the opposing party and sends the appeal together with the case file to the higher court. If the appeal is admitted, the parties are summoned to a hearing. After the hearing, the appellate court must issue its decision within 20 days, addressing the grounds raised in the appeal and, where applicable, in any joined submissions.

Certain decisions may be challenged by a cassation appeal. This appeal must be filed in writing and properly reasoned. The time limit for filing it is 15 days from the day following notification of the contested decision. Where the law allows this remedy, jurisdiction belongs to the Civil Chamber of the Supreme Court of Justice.

For a foreign creditor, an important part of recovery is the recognition and enforcement of foreign judgments in El Salvador. First, it is necessary to determine whether there is already a foreign court judgment, another foreign judicial decision or an arbitral award that can serve as an enforcement title. Salvadoran civil and commercial procedure treats foreign judgments and other foreign judicial decisions ending proceedings, as well as foreign arbitral awards recognized in El Salvador, as foreign enforcement titles.

These titles have enforceable effect under international treaties, rules of international legal cooperation or treaties concluded with the state of origin of the title. If no applicable treaty or international rule exists, recognition may still be possible if the legal conditions are met, including that the decision has final effect in the state of origin, was issued by a competent authority, complies with Salvadoran rules on international jurisdiction, and the defendant was properly notified and given the opportunity to defend itself.

Recognition of foreign judgments, foreign judicial decisions and foreign arbitral awards falls within the jurisdiction of the Civil Chamber of the Supreme Court of Justice. Once the foreign title is recognized, its performance is carried out under Salvadoran rules of forced execution, unless an applicable international treaty provides otherwise.

After a national judgment becomes final, or after a foreign title has been recognized where recognition is required, the creditor must initiate enforcement proceedings. A final court decision may be submitted for execution within 2 years from the date on which it became final.

Within forced execution, the creditor files an application identifying the debtor subject to enforcement, the title relied on, the amount to be recovered and the enforcement measures requested. In monetary enforcement, the amount claimed may be increased by up to one third to cover interest and costs arising during enforcement, subject to later calculation of the actual amount.

If the creditor knows the debtor’s assets, they may be listed in the application. If the assets are unknown, or if the known assets are insufficient, the creditor may request measures to locate assets. The enforcement order should identify the person against whom enforcement is directed, the amount for which enforcement proceeds, the measures ordered, attachment of assets and measures for locating the debtor’s property.

The creditor’s claims may be satisfied through attachment of funds, withholding of amounts, attachment and sale of movable or immovable property, enforcement against property rights, securities and other assets subject to execution. 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 under the applicable procedure.

If the debtor shows signs of insolvency, the creditor should assess the possibility of using measures connected with the debtor’s bankruptcy. In El Salvador, a judicial declaration of bankruptcy applies to a merchant who has ceased paying obligations. This situation is presumed, among other cases, where there is failure to pay liquid and due obligations, insufficient assets on which attachment can be made, concealment or absence of the merchant for 15 days or more without leaving a person legally able to perform the obligations, voluntary closure of business premises for 15 days or more while obligations remain pending, transfer of assets to the detriment of creditors, or use of ruinous, fraudulent or fictitious means to perform or avoid performance of obligations.

At this stage, the creditor’s objective is not only to obtain a judgment or begin individual enforcement, but also to protect the assets that may be used to satisfy creditors. If the debtor’s assets are insufficient, it becomes especially important to review transactions made before bankruptcy or during a period connected with it, particularly where those transactions reduced the debtor’s estate, improperly favored certain persons or made recovery more difficult.

Salvadoran commercial law regulates acts in fraud of creditors before bankruptcy. Acts of the bankrupt person made in fraud of creditors have no effect against the bankruptcy estate, whether they occurred before or after the declaration of bankruptcy. If the act was made for value, it is necessary to establish that the third party involved knew of the fraud. From the date to which the effects of bankruptcy are retroactive, acts made free of charge, acts for value in which the benefit received by the bankrupt person is clearly lower than the benefit given, and payments of obligations not yet due are presumed, without admission of contrary proof, to have been made in fraud of creditors.

Payments of due debts made in a form different from that corresponding to the nature of the obligation, as well as the creation of property rights over the bankrupt person’s assets to secure earlier obligations where such security had not been agreed in advance, may also be presumed to have been made in fraud of creditors unless good faith is proved. In addition, payments, acts and transfers made for value from the retroactive date of the bankruptcy effects may be treated as fraudulent if the representative of the bankruptcy procedure or another interested person proves that the third party knew about the bankrupt person’s situation.

The practical consequence of these rules is that assets, sums, proceeds or interest that must return to the bankruptcy estate may increase the property available to satisfy creditors’ claims and cover the costs of the procedure. If the assets affected by the transaction have already left the estate of the person who received them and were acquired by a third party in good faith, damages may be claimed from the first acquirer unless that person proves good faith. The same liability may apply to a person who destroys or conceals assets to avoid the effects of revocation.

If you need support with international debt collection in El Salvador, our company can assist with document analysis, debtor assessment, determination of the applicable limitation period, preparation of the out-of-court stage, selection between ordinary proceedings, abbreviated proceedings, executive proceedings and payment order proceedings, recognition and enforcement of a foreign judgment or arbitral award, enforcement against the debtor’s assets and assessment of measures connected with bankruptcy. Contact us for a preliminary case review and to define the most suitable strategy based on the documents, amount claimed, asset location and debtor’s conduct.

# DEBT COLLECTION AGENCY EL SALVADOR

21.08.2024

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