Debt Collection in Paraguay

The debt collection in Paraguay process should begin with a legal, financial and registry review of the debtor. At this stage, it is important to verify the debtor’s identity and address, business activity, documents proving the debt, pending court or enforcement proceedings, signs of insolvency, registrable assets and possible grounds for disputing the claim. In a case against a Paraguayan debtor, registry information on real estate, personal annotations, cadastral data, ownership status, bankruptcy and creditor convening proceedings may also be relevant.

Before starting negotiations or court proceedings, the creditor should organize the contract, invoices, delivery or service documents, commercial correspondence, proof of partial payment, acknowledgment of debt, guarantees, checks, promissory notes, confirmed invoices and other documents that can prove the existence and enforceability of the obligation. This review helps determine whether the case should proceed through amicable collection, ordinary proceedings, small claims proceedings, executive proceedings, recognition of a foreign judgment, compulsory enforcement or measures connected with the debtor’s insolvency.

If the debtor continues to operate, has no clear signs of insolvency and the documents support the claim, the out-of-court stage may be used to obtain voluntary payment, formalize a payment schedule, receive the return of goods, secure a written acknowledgment of debt, strengthen guarantees or prepare a future court case with a stronger evidentiary basis.

Communication with the debtor should be carried out through written notice and channels that allow the creditor to preserve proof of sending, the content of the claim and the debtor’s responses. Where the debt is based on checks, promissory notes, confirmed invoices or other debt instruments, preserving the original document is especially important to avoid disputes over the existence, transfer or enforceability of the instrument.

If negotiations do not produce a reliable solution, the debtor denies the debt without proper grounds, breaches a payment arrangement or the registry review shows a risk of asset dissipation, the creditor should prepare judicial debt collection and choose the appropriate procedural route according to the document, the claim amount and the debtor’s financial position.

Before initiating court action, the creditor should verify the limitation period applicable to the specific claim. In Paraguay, personal actions for which the law does not establish a special term are subject to a 10-year limitation period. The same 10-year period applies to an action arising from a right recognized by a final judgment, even if the original right was subject to a shorter term. Claims by traders for the price of goods sold are subject to a 3-year limitation period.

The limitation period may be interrupted by a claim notified to the debtor, by filing the debt instrument in succession proceedings or creditor convening proceedings, by any clear judicial or out-of-court act that amounts to acknowledgment of the debt by the debtor, or by a public deed agreement to submit the dispute to one or more arbitrators. After interruption, the limitation period starts running again under the applicable rules.

Paraguayan law allows judicial debt collection to be structured through ordinary proceedings, small claims proceedings or executive proceedings. The correct route depends on the amount of the claim, whether the debt is disputed and, most importantly, whether the creditor holds a document that allows immediate enforcement.

When the debt is recorded in an enforceable instrument and the obligation consists of a due and liquid sum of money, the creditor may use executive proceedings. This route is especially important for claims based on a public instrument, a private instrument recognized in court or bearing an authenticated signature, an acknowledgment of a due and liquid debt before a competent judge, an account approved or recognized in preparation of the executive action, a bill of exchange, a confirmed invoice, a voucher, a promissory note, a check rejected by the drawee bank and other instruments to which the law grants enforceable force.

In executive proceedings, the judge carefully examines the document filed by the creditor. If the instrument allows enforcement, the judge issues an order for payment and attachment covering the liquid amount claimed, interest and costs. The order is delivered on the same day to the court officer, who must demand payment from the debtor within three days. If the debtor does not pay when required, the court officer attaches sufficient assets to cover the amount stated in the order.

If the attachment concerns assets held by third parties or claims owed to the debtor by third parties, the measure must be notified on the same day to the holders of the assets or to the persons required to make payment. If it concerns real estate or other registrable assets, the attachment may be made effective by entry in the relevant register, and the necessary court communications must be issued within the second day after the decision ordering the measure.

After the demand for payment, the debtor may file objections within five days, in a single written submission and with the evidence offered at the same time. The admissible objections include lack of jurisdiction, lack of proper representation, another pending case between the same parties, falsity or unenforceability of the instrument, limitation, documented full or partial payment, set-off of a liquid claim evidenced by an enforceable document, debt reduction, extension of time, release, renewal, settlement and a prior final judgment on the same matter.

If the debtor does not file objections within the time limit, the judge issues a sale judgment without further proceedings. If the objections are clearly inadmissible or are not stated clearly and specifically, they may also be rejected without further examination. When the objections are admitted, the creditor is given five days to respond.

If the dispute concerns only a legal issue or can be decided solely on the case file, the judge must issue the judgment within ten days after the creditor’s response or after the deadline for that response has expired. If the objections require evidence, the judge sets a common evidentiary period, which may not exceed fifteen days. Each party may present up to seven witnesses, and no extraordinary evidentiary period is granted. After the evidence is produced, the file remains with the court clerk for two days, after which the judge issues the judgment within ten days.

This structure makes executive proceedings useful for a creditor with strong documents, but it requires a prior review of the form and content of the debt instrument. A check, promissory note, confirmed invoice or defective private document may lead to debtor objections, preparatory measures or the need to use ordinary proceedings before effective enforcement can be obtained.

Ordinary proceedings are used when the debt requires a prior judicial determination of its existence, enforceability or amount, or when the creditor does not have a sufficient enforceable instrument. The process begins by filing a claim with the competent court. If the claim meets the legal requirements, the judge serves it on the defendant, who must respond within eighteen days.

In the response, the defendant must clearly admit or deny each fact stated in the claim, address the authenticity of the documents concerning him and state whether he received letters, telegrams or other documents addressed to him when copies have been attached. The defendant must also clearly set out the facts on which his defense is based.

Silence, evasive answers or a general denial may be treated as acknowledgment of the truth of the relevant and lawful facts to which they relate. If the defendant attaches documents to the response, they are sent to the claimant, who must reply within six days.

If the defendant acknowledges the facts alleged by the claimant, the judge may declare that the case concerns only a legal issue. In that situation, the parties are heard in turn and the case proceeds to the decision stage. If there are relevant facts on which the parties disagree, the judge opens the evidentiary stage.

If one of the parties objects to the opening of the evidentiary stage within three days, the judge decides after hearing the other party. The decision is appealable only if it cancels the opening of the evidentiary stage.

If, within three days after the ruling opening the evidentiary stage becomes final, all parties state that they have no evidence to produce, or that the evidence consists only of the case file or documents already filed and not disputed, the judge gives the parties a further opportunity to present their positions and the case then proceeds to final judgment.

When the evidentiary stage continues, the judge sets a period for the production of evidence, which may not exceed forty days. Evidence must be offered within the first ten days, subject to the special rules on documentary evidence and statements by the parties.

The evidentiary period may be closed before its expiry if the parties agree or if all evidence has already been produced. After this stage is completed, the file is handed to the lawyers in turn for six days each so that they may submit written arguments on the value of the evidence, if they consider it necessary.

After the written arguments are submitted or the deadline for submitting them expires, the court proceeds to final judgment within the applicable procedural term.

Small claims proceedings apply to civil and commercial claims that fall within the jurisdiction of the lower-value courts, up to three hundred statutory minimum daily wages for various unspecified activities in the capital of the Republic. This route keeps the logic of a knowledge-based court process, but with shorter time limits: the defendant responds to the claim within six days; if the matter concerns only a legal issue, the judge may decide within ten days; and the period for issuing the final judgment is shorter than in ordinary proceedings.

The final judgment may be appealed within five days from notification. An appeal is available against final judgments and against decisions that resolve incidental matters or cause irreparable harm. In the second instance, the higher court reviews the appeal within the grounds raised by the appellant. When the Supreme Court of Paraguay hears the case on appeal, the appeal grounds must be filed within nine days for a final judgment and within five days for an interlocutory order.

If the creditor already has a judgment issued by a foreign court, the strategy in Paraguay does not usually begin with a new ordinary debt claim, but with the analysis of recognition and enforcement of foreign judgments. Foreign judgments are enforceable according to the treaties applicable with the state of origin. Where no applicable treaty exists, a foreign judgment may still be enforced if it has final effect in the state where it was issued, comes from a competent court, the defendant was lawfully summoned and represented or lawfully absent under the law of origin, the obligation is lawful under Paraguayan law, it does not violate international public order, it meets the required authenticity conditions and it is not incompatible with an earlier or simultaneous Paraguayan judgment.

Enforcement of a foreign judgment must be requested before the competent first-instance court. The application should include a legalized and translated copy of the judgment, together with the documents needed to prove that the judgment is final and meets the required conditions. This stage is especially relevant when the creditor obtained a decision outside Paraguay but needs to reach assets, money, receivables or other property rights located in Paraguay.

After a Paraguayan judgment becomes final or enforceable and the period for voluntary compliance expires, the creditor should initiate compulsory enforcement. A right recognized by a final judgment is subject to a 10-year limitation period. If the judgment orders payment of a liquid and determined amount, or if there is an approved and final calculation, the creditor may proceed against the debtor’s assets under the applicable enforcement rules.

During enforcement, the creditor’s claim may be satisfied by attachment of money, receivables, movable property, registrable assets or real estate of the debtor, followed by liquidation, payment to the creditor, realization or judicial sale depending on the nature of the attached assets. In executive proceedings, the order for payment and attachment allows the debtor to be required to pay and, if payment is not made immediately, sufficient assets may be attached to cover principal, interest and costs.

If the debtor shows signs of insolvency and cannot regularly meet debts as they fall due, the creditor may consider the path of bankruptcy. In Paraguay, a declaration of bankruptcy presupposes the debtor’s state of insolvency, which may be shown by one or more defaults or other external facts demonstrating the debtor’s financial inability to fulfill obligations, regardless of their nature. Bankruptcy may be requested by the debtor, the debtor’s heirs or one or more creditors.

In a bankruptcy scenario, recovery is not limited to checking whether the debtor still has assets at the time of the filing. It may also be necessary to review transactions carried out before the bankruptcy declaration or the relevant filing. Gratuitous acts and payments of obligations that were not yet due, if performed within the preceding twelve months, are ineffective against the bankruptcy estate. Within the same twelve-month period, disproportionate transactions for value, payments of matured debts made in a form different from that originally due, and the creation of real security for prior obligations that previously had no such security may also be revoked, unless the counterparty proves that the debtor was solvent or that there was sufficient reason to believe the debtor was solvent.

In addition, transactions for value carried out within the preceding six months with direct-line relatives, blood or in-law relatives up to the second degree, the spouse or corresponding relatives of the spouse may be revoked in favor of the bankruptcy estate when the legal conditions are met. Once a transaction is revoked or declared ineffective, the transferred assets must be returned to the estate. If return in kind is not possible, compensation applies. If the assets passed to third parties, their return may also be claimed in the cases provided by law.

Where the lack of assets is connected with asset stripping, simulated transactions, transfers of property to the detriment of creditors or fraudulent conduct by persons controlling the debtor, insolvency analysis may be combined with asset preservation measures, avoidance of harmful transactions and assessment of liability of managers, owners or other persons who contributed to the creation or aggravation of the financial harm.

If you have a problem with a debtor in Paraguay, Grandliga can help analyze the documents, define the recovery strategy, prepare negotiations, organize court proceedings, follow the enforcement of a judgment or work on recognition of a foreign judgment. Contact us to assess the case and choose the most appropriate recovery route based on the available evidence, the debtor’s position and the legal measures that can actually be used.

# DEBT COLLECTION AGENCY PARAGUAY

19.09.2024

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