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PHUKET: With the Thai economy stagnating, household debt is reaching record levels. According to the University of the Thai Chamber of Commerce, the average household debt reached nearly 300,000 baht in 2016. This amount is higher than the annual income of the average Thai family.

In case of default, the first thing is to ensure that the loan is enforceable.

Title IX, Chapter II of the Civil and Commercial Code outlines the requirements for consumer loans. A loan exceeding 2,000 baht must be written and signed by the borrower. Repayment or cancellation of loans exceeding that can only be proven with a document signed by the borrower.

A loan for a movable property is covered by Title XIII, Chapter I of the Civil and Commercial Code. These require a written agreement outlining the obligation for performance of the loan with interest, compensation in case of non-performance, and requirements to preserve the pledged property. If the debtor defaults, the creditor must first notify the debtor in writing.

The code does not require a written agreement for contractors. If the contractor has completed any part of the work, the employer is liable for the completed part. It is still recommended that the parties have a paper agreement outlining the rights and obligations of each party; otherwise an employer can cancel the job as long as he compensates the contractor for loss.

The creditor should also review the statute of limitations on attempting to collect a debt. Most debts have a limitation of 10 years but some claims are limited to two or five years. After the time limit has passed, the debtor can legally refuse to pay.

If the debtor has defaulted, the creditor should try to mitigate losses before filing a lawsuit. It might be better to negotiate a partial or extended payment plan to avoid litigation. If negotiation does not lead to an agreement, the creditor can choose to litigate. Some claims require that the creditor should serve a demand letter outlining the claim and requesting payment within a reasonable time period.

If the demand letter is ignored, the creditor can file a lawsuit. The attorney needs to review the information and history of the dispute to ensure that a lawsuit is plausible and reasonable. If the debtor has the ability to pay or owns property that can be held in lieu of financial payment, then it may be reasonable to pursue litigation.

The lawsuit begins with the filing of a claim with a court. The place of filing will depend on the value or type of debt. After filing the claim, the court will generally require the parties to go to mediation. A mediator will attempt to push the parties to come to an agreement. If that fails, the court will consider the evidence and make a judgment. If the debtor does not comply with the judgment, the creditor can request a writ of execution to force the seizure or auctioning of the debtor’s property.

The process of filing a lawsuit is time consuming and expensive. It is better to negotiate and avoid litigation, considering the value of litigation in respect to the possible gain.

Robert R Virasin is a licenced US Attorney and managing director of Virasin & Partners. Yutthachai Sangsirisap is a licensed Thai Attorney. They can be reached at info@virasin.com or at their website www.vir asin.com.

— Robert R Virasin