Pratical Guide to International Debt Collection in Hungary

Practical Guide

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Hungary

Is there a minimum amount to start a legal action?

In general, in Hungary there is no minimum amount requirement, however, in some cases the amount of the claim can determine the type of legal proceedings (See point no. 2.).

Will the amount due condition the type of procedure?

It is important to emphasize that in Hungary only overdue claims can be collected.

In Hungary, the unpaid amount can influence the type of procedure.

  • Order for payment procedure: This procedure falls within the competence of public notaries. It does not have a minimum value threshold, but it is mandatory for claims less than HUF 3,000,000 (cc. EUR 8500). In case the amount of the claim exceeds HUF 30,000,000, only legal action can be taken. A procedural fee is to be paid by the claimant when the submission is made, which is 3% based on the value of the pecuniary claim, minimum 8000 HUF, plus 1600 HUF per party involved in the procedure, but maximum HUF 300,000.
  • Litigation: If the value of the claim exceeds HUF 3,000,000, the claimant can directly sue the debtor before the competent court. If the claim exceeds HUF 30,000,000, litigation is the only remedy. The fee for the first instance litigation is 6% of the value of the litigation, but not less than HUF 15,000 and not more than HUF 1,500,000.
  • Liquidation (insolvency) procedure: If the value of the claim exceeds HUF 200,000 and the debtor is a legal person, the claimant can start a liquidation procedure. In this case, the claimant must have a written contract with the debtor based on which the debtor failed to pay the invoice due and which was not disputed by it earlier. The fee of the liquidation procedure is HUF 80,000.
  • Other alternative procedures are available as well, such as the arbitration and mediation procedure or the European Payment Order.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

According to the Hungarian law, the warning letter is mandatory only in liquidation proceedings. In this case, it is important that the letter shall contain the legal title of the claim, the amount, the currency and the expiration date, as well as a notice that the warning letter can be submitted and used as a proof in the future liquidation or litigation procedure. In the absence of a warning letter, the court will reject a petition to initiate liquidation.

It is important to emphasize that when interest for late payment becomes mandatory in commercial transactions, the creditor is entitled to obtain from the debtor, as a minimum, a fixed sum of EUR 40.

Furthermore, it is advisable to authorize an attorney-at-law to draft the warning letter.

What are the best practices for creditors to increase the possibility of recovering the debt?

First of all, it is advisable to verify which jurisdiction shall be applied.

In view of this, the creditor or its legal representative has to check whether the claim has expired, as only overdue claims can be enforced in Hungary.

It is then appropriate to clarify the claim’s legal title, the amount and currency and the associated interest rate.

Furthermore, the debtor’s person must be checked. If the debtor is a company, the creditor must verify whether the company still exists, or if it is under any kind of insolvency proceedings, and it is important to examine whether the company submitted the balance sheet. The balance sheet is crucial, given that the debtor's financial situation can be deduced from it, and the creditor may decide whether it is worthwhile or not for it to initiate the debt collection proceeding.

It is also important to check in the register of collateral securities whether there are any registered claims and their collateral against the debtor, such as a mortgage on its real estate. It is crucial to note that if there is a lien or mortgage on the object securing the claim, it precedes all other claims.

How can a foreign creditor start a procedure for international debt collection?

For international debt collection, the following procedures are available in Hungary:

  • order for payment procedure
  • litigation
  • liquidation (insolvency) procedure
  • other alternative procedures such as arbitration and mediation procedure or European Payment Order (see Chapter 2)


However, in the order for payment procedure legal representation is not obligatory, but is strongly advisable. A power of attorney is required for a legal representative to take action in the procedure of debt collection. It is important to emphasize that no payment order can be issued if a party does not have a known registered address for the service in Hungary. In this case the European Payment Order can be applied.

Which documents are necessary for the debt collection in Hungary?

Any and all documents which prove the legal title of the claim, the amount, the currency and the expiration date are required, such as contracts, correspondence or invoices and other document that the claimant considers important.

If the creditor is a legal entity, it is necessary to prepare the Certificate of Incorporation of the entity or any other official document which proves the incorporation of the creditor’s entity.

What happens after the first demand of payment?

If the claimant is certain about the legal title of his claim (see the chapters above), the debtor can be called to pay by a formal letter. If the debtor fails to pay, litigation may be initiated. If the debtor disputes the claim, that leads to litigation.

Can interim measures be taken?

If necessary, in the interest of the claimant, upon request the court may order interim measures in any situation deserving special consideration.

The court will make a decision in relation to the request for provisional measures as a matter of priority, and will make take measures without delay, but no later than within 8 days. The court’s order on provisional measures is enforceable in advance.

Interim measures may impose an obligation to perform an act that the requesting party (in our case the creditor) would be entitled to demand by exercising its rights seeking to enforce in the action. This may involve claims or property specified in the petition.

If the debtor is the owner of a real estate, a registered initiation of legal action can be taken as an interim measure. In this case, upon the creditor’s request, the court can issue a preliminary writ of execution to the competent Land Registry of the fact of initiating legal action.

If, for any reason, the recovery was not possible, is there any other action that the creditor could take to write off such debt in its accountancy?

If the recovery of the claim in the liquidation procedure was unsuccessful, the liquidator issues a certificate of bad debt at the request of the creditor. In the event that enforcement has failed, at the request of the creditor the bailiff will issue a certificate confirming this.

Using this certificate, the creditor can deduct the uncollected receivable from his annual income.

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