Debt Collection in Brazil

In Brazil, there is no minimum amount required to initiate a legal action. Nevertheless, it is advisable to carefully evaluate the potential costs associated with legal expenses and attorney fees before deciding to pursue legal action.

No, the amount due is irrelevant. In Brazilian law, the type of procedure is determined by the set of documents the creditor possesses as evidence of the debt. If the document qualifies as an enforceable instrument (e.g., a contract signed by two witnesses, a lease agreement, etc.), an expedited enforcement route is possible, which is quicker than other paths.

In Brazilian law, there are three types of procedures for credit recovery, determined by the type of document the creditor possesses to prove the default: execution (enforcement of an extrajudicial executory instrument), monitory action, and common collection action.

Considering that the enforcement of an extrajudicial executory instrument is the swiftest procedure, it is advisable for the creditor to gather the necessary documents to establish an extrajudicial executory instrument.

Furthermore, it is also advisable to conduct searches for non-judicial assets and searches for other lawsuits involving the debtor. Additionally, another precaution that can be taken and is quite common in Brazilian contracts is to require the counterparty to provide collateral in case of contractual breach. The Brazilian legal system offers various types of guarantees.

In Brazilian law, there are three types of procedures for credit recovery, determined by the type of document the creditor possesses to prove the default: execution (enforcement of an extrajudicial executory instrument), monitory action, and common collection action.

Considering that the enforcement of an extrajudicial executory instrument is the swiftest procedure, it is advisable for the creditor to gather the necessary documents to establish an extrajudicial executory instrument.

Furthermore, it is also advisable to conduct searches for non-judicial assets and searches for other lawsuits involving the debtor. Additionally, another precaution that can be taken and is quite common in Brazilian contracts is to require the counterparty to provide collateral in case of contractual breach. The Brazilian legal system offers various types of guarantees.

If it is possible to use the execution (enforcement of an extrajudicial executory instrument procedure), foreigners are treated without any distinction from Brazilians. If there is no "executory instrument," and the creditor needs other means of collection, a deposit equivalent to 10% of the credit amount may be required, and this amount will be refunded at the end of the process.

Before proceeding with a judicial route, the creditor should engage a law firm with extensive experience in credit recovery. This allows for a feasibility study to be conducted before initiating a legal action, as the process incurs costs and may not always yield a return.

In this feasibility study, the law firm will gather information such as the number of debts and protests related to the debtor and analyze any other lawsuits in which the debtor may be involved to have a comprehensive understanding of the chances of recovering that credit.

In many cases, it is advisable for the law firm to also search for potential assets that can be used to satisfy the debt through extrajudicial means and to check the financial situation of the partners and any changes in the corporate structure if the debtor is a company.

In Brazil, the set of documents that the creditor possesses to prove the existence and enforceability of a debt will determine the type of procedure that will be adopted for its collection.

Generally, this includes documentary evidence of the credit and the articles of association or bylaws of the creditor party.

Depending on the type of procedure for recovery (collection action, monitory action or enforcement of an extrajudicial executory instrument), the following paths may be taken:

1. execution (Enforcement of an Extrajudicial Executory Instrument): the debtor will be summoned to pay the debt within 3 days. If there is no payment, the debtor's bank accounts may be frozen for 30 days to allow the funds to be directed to the creditor. If the balance is insufficient, the creditor may seek other assets such as real estate, movable property, and credits.
2. monitory Action: the debtor will be summoned to either pay the debt or present a defense within 15 business days. If the debtor remains inactive, the judge will establish the judicial executory instrument, and the debtor will be notified to pay the debt within 15 days, under penalty of a 10% fine and asset freeze (bank accounts, real estate, movable property, etc.).
3. collection Action (Common Procedure): the debtor will be summoned to attend a conciliation hearing or present a defense within 15 business days. After the defendant's defense, the judge will decide on the existence of the debt. If confirmed, the debtor will be ordered to pay within 15 days, under penalty of a 10% fine and asset freeze (bank accounts, real estate, movable property, etc.).
   

Yes. If the creditor can demonstrate the debt and provide evidence that the debtor is dissipating assets, the judge may, in a precautionary manner, authorize the seizure of assets such as financial assets, vehicles, real estate, etc.

Generally, in Brazil, it is possible to deduct a debt from the balance sheet to obtain benefits in the calculation of certain taxes. However, it is necessary for the creditor to provide documentary evidence that they attempted to recover that credit through legal means and that such action was unsuccessful.

The creditor may also seek the declaration of the debtor's bankruptcy.