Debt Collection in Japan

The debt collection process in Japan begins with an assessment of the debtor’s solvency, their business sector, business history, availability of documentary evidence of the debt, ongoing 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 ongoing court cases or outstanding judgments for debt collection and is actively engaged in business activities, then it is advisable to use the out-of-court debt collection stage.

This stage involves active negotiations with the debtor in order to reach an agreement on payment of the creditor’s claims or other possible settlement options (e.g. return of goods, transfer of the debt to a third party, exchange of services or goods).

Interaction with the debtor begins immediately after sending a notice by mail, email, phone or instant messengers. This process involves intensive communication with the debtor in order to exert constant pressure. The main objective is to establish contact with key decision makers to achieve prompt debt collection.

The average time for informal extra-judicial collection is up to 60 days (except in cases where a payment plan is agreed upon). If this stage does not produce the expected results or, after an initial analysis, it becomes clear that it is not applicable, it is necessary to proceed to collection through the courts.

Before initiating judicial collection, it is worth paying attention to the statute of limitations. The statute of limitations for debt collection is 5 years. The consequences of missing the statute of limitations are applied in court only upon the debtor’s application. The statute of limitations is interrupted if the debtor acknowledges the debt obligation. After the interruption, the statute of limitations begins to count anew.

Japanese law provides for judicial debt collection in ordinary court proceedings, in simplified proceedings, in the procedure for small claims proceedings, and in the procedure for issuing a demand for payment.

The ordinary judicial procedure is carried out by filing a statement of claim with the court, after which the court, if the claim complies with the requirements of the law, sets a date for oral arguments and summons the parties to court.

During oral arguments, the parties must present oral arguments to the court, which must be in writing and contain the following information: allegations and evidence; statements regarding the claims, charges and evidence of the opposing party.

If, due to the complexity of the case, for example, the large number of details that must be considered, or due to any other circumstances, the court must consult with both parties and develop a trial plan based on the results of these consultations. The trial plan must contain the following information: time limits for settling disputed issues and evidence; time limits for examining witnesses and the parties themselves; expected time limits for completing oral arguments and rendering a decision; setting a time limit for filing a written answer or a summary of the allegations on a specific issue.

The trial plan may also specify the time limits for presenting allegations or evidence with respect to any particular issue, and any other information that is necessary for the planned course of the trial.

If the defendant fails to appear for oral argument, the court shall conduct an examination of the evidence anyway. However, if the defendant is required to be examined and fails without good cause to appear or refuses to take an oath or make a statement, the court may find that the plaintiff’s allegations with respect to the issues to be examined are true.

After the trial plan, or the procedure for settling issues and evidence (if there is no plan), has been completed, and the trial has progressed sufficiently to enable the court to render judgment, the court shall render a final judgment. The court shall render a judgment within two months from the date of the conclusion of the oral hearing; however, this provision does not apply if the case is complex or there are other special circumstances.

If one or both parties fail to appear or leave the court without presenting oral arguments on the day appointed for oral hearings, and the court considers it appropriate having regard to the current state of the proceedings and the conduct of each party during the proceedings, it may make a final decision at the request of the interested party.

The simplified court procedure is applicable for consideration of uncomplicated cases in the shortest possible time. Under this procedure, a lawsuit may be filed orally. When filing a lawsuit, instead of stating the claims, it is sufficient to state the main provisions of the dispute.

In an action for payment of money, if the defendant does not deny the facts stated by the plaintiff during the oral hearing or does not raise any objections or evidence, and the court considers it appropriate having regard to the financial position of the defendant and other circumstances, the court, after hearing the plaintiff, may make an order requiring the defendant to pay the amount claimed, setting a period for payment or payment by installments, the period not exceeding five years. The defendant may file an objection to the order within two weeks from the date of receipt of notice of such order. If the objection is filed within the specified period, it loses its force. If no objection is filed, the order has the same force as a final judgment.

During oral arguments, the oral arguments of the parties do not necessarily have to be prepared in writing. After establishing the essential points of the subject matter of the claim and examining the evidence, the court makes a final judgment.

The small claims procedure is applicable to debts up to 600,000 yen. The trial must be completed on the first day of oral argument. However, it is permissible to limit the examination of evidence to evidence that can be examined immediately. The court will render a decision immediately after the completion of oral argument, unless it deems it inappropriate to do so. If the defendant does not agree with the decision, he may file an objection to it within two weeks in the same court that made the decision. If an objection is filed in due time, the trial will return to the stage it was at before the completion of oral argument. In such a case, the trial will proceed as usual.

The order for issuing a demand for payment is applicable to the collection of a specific amount of money or other fungible things or securities. To implement this procedure, the creditor must file an application with the court, after which the court clerk may issue a demand for payment. The demand for payment comes into effect from the moment it is delivered to the debtor. If the debtor fails to file an objection to the demand for payment within two weeks from the date of service, the court clerk shall, upon the creditor’s application, issue a preliminary execution order. If the debtor files a timely objection, if the court finds it justified, the case will be examined in the ordinary or summary procedure, depending on the amount of the debt. If the court finds that the objection is unfounded, the court will issue an order rejecting the objection.

The decision of the court of first instance may be appealed to the court of second instance within two weeks from the date of service of the contested decision. The decision of the court of second instance may be appealed to the Supreme Court of Japan within two weeks from the date of service of the contested decision. The decision of the Supreme Court is final and may not be appealed further.

After the judgment has entered into legal force, the creditor must initiate enforcement proceedings. The judgment may be presented for execution within 10 years from the date of entry into legal force. As part of the enforcement of a court decision, the creditor’s claims may be satisfied by seizing and writing off funds from the debtor’s accounts; seizing the debtor’s movable and immovable property with their subsequent sale; seizing and confiscating securities and company bonds; receiving income from the debtor’s assets.

An alternative option for debt collection is to use the debtor’s bankruptcy procedure. The creditor has the right to initiate this procedure, provided that the debtor is insolvent. The Bankruptcy Law establishes that the debtor is insolvent if it has suspended payments. At this stage, if the debtor’s assets are insufficient to fully satisfy the creditors’ claims, it is possible to cancel the debtor’s transactions that were made with the purpose of deceiving creditors. Among such actions, the following should be highlighted in particular: any transactions made by the debtor, provided that the debtor and his counterparty knew that such a transaction would cause damage to creditors; any gratuitous or burdensome actions for the debtor, made within six months before the date of suspension of payments; transactions with related parties; actions made by the debtor with the purpose of concealing his assets. The right to cancel these actions is valid for two years from the date of opening the bankruptcy procedure. As a result of the cancellation of such actions, it is possible to return back to the debtor what he lost from such transactions and thereby increase the liquidation estate to satisfy the claims of creditors and cover the costs of implementing the bankruptcy procedure.

If you have any questions or need support for international debt collection in Japan, our company is ready to provide its expert assistance to effectively resolve your financial issue. Contact us to get additional information and professional support from specialists of the leading debt collection agency.

# DEBT COLLECTION AGENCY JAPAN

03.10.2024

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