Debt Collection

The term debt collection refers to the process of collecting outstanding payments.

In the case of consumer loans, debt collection refers to the process by which the lender attempts to collect outstanding debt from borrowers who are in arrears with their instalment payments. There are two stages to this process.

Initially, reminders are sent out, calling on the borrower to pay the monthly instalment. If payments are still not received after reminders and/or overdue notices, debt collection experts are often brought in – these may come from internal departments, but may also be external specialist service providers.

They often try to reach an agreement with the struggling borrower on an alternative payment plan.

The costs incurred for these efforts are charged to the borrower in addition to the default interest. General terms and conditions or the loan agreement provide information about the extent of the costs and how they are passed on in the event of debt collection measures.

If a borrower is dealing with a debt collection department, it is highly likely that ZEK will also be informed. Credit institutions affiliated to ZEK / IKO must report payment delays by a defaulting borrower via creditworthiness codes (e.g. late payment or debt collection measures). These remain on record for several years and in most cases make further borrowing or loan restructuring impossible. LEND is a member of ZEK / IKO.

If the out-of-court collection is unsuccessful, the next step is usually the judicial collection. In Switzerland, this is regulated by the Federal Law on Debt Collection and Bankruptcy (SchKG). The announcement of a collection enforcement is followed by a debt enforcement request. The debt enforcement office then issues a payment order against which the debtor can file an objection, which temporarily halts the proceedings. The objection is then examined by the court. If the debtor does not pay, does not file an objection or the objection is overruled by the court, the creditor can request the continuation of the debt enforcement proceedings, which ultimately lead to foreclosure. In such cases, the debtor's current income is often seized, while the seizure of tangible assets or the foreclosure of real estate occurs less frequently.

The Swiss debt collection system is highly efficient and effective. Only a small percentage of credit projects that are in default of payment have to be written off after unsuccessful debt collection.