How long do you have to recover a debt in court, and what documents do you need?

The principal debt is subject to the general ten-year limitation period – Article 1.125(1) of the Civil Code (CK). For default interest (contractual late-payment penalties) and fines, the limitation period is six months, as laid down in part 5 of the same Article. For interest and other periodic payments it is five years; this is laid down in part 10 of the same Article. This means something that surprises most clients: the debt itself may still be recoverable, while the limitation period for the claim for accrued default interest has already expired. The list of documents is short, but it is usually the translation and the letter of demand that decide when the case gets moving.

Three different limitation periods in one invoice

This is the most common mistake when working out how much can be claimed.

Article 1.125(1) CK sets the general ten-year limitation period. It applies to the claim for the principal debt.

Article 1.125(5) CK sets a shortened six-month limitation period for actions to recover contractual penalties – fines and default interest. Six months pass quickly, and default interest often makes up a larger part of the claim than the debt itself.

Article 1.125(10) CK sets a shortened five-year limitation period for claims to recover interest and other periodic payments.

The practical conclusion: before the statement of claim is prepared, the claim has to be split into three parts, and each part has its own limitation period applied to it. A single figure covering everything gets reduced in court.

What documents are needed

The contract or the order. The invoices. Evidence that the goods were delivered or the services provided – delivery notes, acceptance certificates, correspondence. A reconciliation statement of mutual accounts, if there is one. The letter of demand and proof that it was sent. A calculation of the debt, with dates.

The list looks short, and for that reason it is often taken too lightly.

One case: a translation nobody knew about until too late

A client had a foreign debtor, and the contract had not been concluded in Lithuanian. The documents were gathered quickly, and the client planned to go to court the same week.

The translation added a separate piece of work and a separate time frame. And not just one day. When the document package consists of the contract, annexes, several dozen invoices and correspondence, translation becomes a project in its own right, with its own cost and its own schedule.

Clients almost always find this out too late. That is why we ask about it in the first conversation: what language the contract is in, what language the invoices are in, what language the correspondence is in. If even one of the answers is not Lithuanian, we put the translation into the timeline straight away.

One case: a letter of demand is not there as a formality

Clients often ask whether a letter of demand is necessary, because it looks like lost time.

The procedure we recommend is as follows. The letter of demand is sent in writing and in a way that allows you to show it was sent. It states the specific amount, its basis, the document numbers and dates, the deadline for payment and what will be done once that deadline has passed. A copy by email, the original by post.

The point worth making openly: a letter of demand is not there as a formality. It is there to fix a date from which the debtor can no longer claim not to have known. That date is later used in calculating interest, in assessing the debtor’s conduct and in deciding on the costs of the proceedings.

In practice a letter of demand is also the cheapest filter. Some debtors pay after it, and some reply, and the reply shows whether the dispute is real or just a delay.

Settlement when the case is already in court

Clients think that filing the statement of claim closes the way back. It does not.

A settlement when the case is already in court is possible, and in practice it is often the cheapest route for both sides. The debtor already understands that the claim is serious, and the creditor has already seen what the proceedings cost. Most often the parties agree on a payment schedule and on waiving part of the default interest.

This is a practical observation, not a rule of law. But it changes how the statement of claim should be written: leaving room for negotiation rather than taking the maximum position.

One case: a second-ranking creditor in insolvency proceedings

A client came to us after insolvency (bankruptcy) proceedings had been opened against the debtor, and asked whether it was worth submitting a claim.

The answer was unwelcome but honest: in practice, the chances of a small second-ranking creditor recovering the debt are often low.

The reason is visible from the law. Article 94(1) of the Law on Insolvency of Legal Entities (JANĮ) provides that, when a legal entity is liquidated due to bankruptcy, the claims of the pledgee are satisfied first out of the pledged assets. Article 94(2)(1) JANĮ lists the first ranking: creditors that provided new and interim financing, employees’ claims connected with employment relationships, social and compulsory health insurance contributions and contributions to the Guarantee Fund and the Long-term Employment Benefit Fund, and obligations arising from activities carried on during the insolvency proceedings. All remaining claims are satisfied in the second ranking.

Article 94(4) JANĮ explains what follows from this: the claims of creditors of each subsequent ranking are satisfied only after the claims of the preceding ranking have been satisfied, and where the funds are insufficient – pro rata.

We say this straight away. Not to talk anyone out of submitting the claim – it is almost always worth submitting, because it is cheap. We say it so that the client can decide in time, and not two years later, whether to keep investing in this case.

How to start

Send us the contract, the invoices and the latest correspondence with the debtor. We will tell you which part of the claim is not yet time-barred, what is missing from the documents and whether it is worth starting with a letter of demand. The first assessment is free of charge.

Tel. +370 5 212 1506, email info@linden.lt

More about this service: debt recovery.