In the business world, it is not uncommon for a business partner to fail to pay their overdue debt or to repay a loan. So what legal options are available in such cases? Below, we summarize the most important legal remedies.
Withholding Performance – A Self-Help Measure
If a contractual relationship is bilateral – that is, both parties have obligations – and the debtor fails to pay, the creditor is entitled to withhold their own performance. For example, a contractor may suspend work until the client pays a previous invoice, or a supplier may halt further deliveries while the buyer remains at a default. Although this measure does not directly serve the enforcement of the debt, it may protect the business from incurring further losses due to non-payment.
Withholding performance can also serve as immediate leverage: suspending the contractor’s services can pressure the client to pay, as otherwise the client will not receive further performance. However, if the contractor has already completed all obligations (e.g., all goods have been delivered), there is nothing left to withhold, and other legal remedies must be considered.
Payment Demand Letter – The First Official Warning
A payment demand is a formal written letter in which the creditor calls upon the debtor to settle the outstanding amount, usually within a short deadline (e.g., 8 or 15 days), and with a clear warning of legal consequences. While involving a lawyer is not mandatory, it is recommended to ensure the letter is well-drafted, uses the proper tone (i.e., does not constitute coercion or blackmail), and is suitable for initiating further legal actions (e.g., liquidation proceedings).
In the letter, the creditor may also include the accrued default interest and, in some cases, a flat-rate debt collection fee of EUR 40. While a payment demand has no direct legal effect on its own, it can play an important legal role. As explained later, a properly timed and well-drafted demand may pave the way for initiating liquidation proceedings and thereby pressure the debtor to pay.
Payment Order – The Fast-Track Option
The payment order procedure is a simplified, notarized legal process for enforcing monetary claims. Claims under HUF 3 million (approx. EUR 7,500) must be enforced exclusively through this procedure. For claims between HUF 3 million (approx. EUR 7,500) and HUF 30 million (approx. EUR 75,000), this method is optional alongside civil litigation.
A payment order is a quick and cost-effective solution: if the debtor does not object within 15 days, it becomes final and immediately enforceable. The procedural cost is relatively low – 3% of the claim amount, with a minimum of HUF 12,000 (approx. EUR 30) and a maximum of HUF 300,000 (approx. EUR 750) – considerably less than the recently increased litigation fees.
However, the debtor may dispute the payment order within 15 days. In this case, the process turns into a lawsuit, and the creditor must initiate civil proceedings within 15 days before the competent court. This naturally slows down debt recovery and incurs additional costs (attorney fees, higher court fees, etc.).
Civil Lawsuit – The Traditional Route
If the payment order procedure is not applicable, or if the debtor contests the payment order, the creditor must initiate a civil lawsuit to proceed with the case.
Though a lawsuit may take several years (and court fees have recently increased), it offers powerful legal tools. For instance, the creditor may request interim measures if there is a risk that the debtor will hide assets by the time the final judgment is issued. Thus, litigation provides the opportunity to secure enforcement even before a final decision.
Enforcement – Compulsory Collection of the Claim
Enforcement proceedings are the final phase of debt recovery: if the creditor holds a final and enforceable decision (e.g., court judgment or payment order), they may request enforcement. The case is then transferred to a bailiff, who locates the debtor’s assets and attempts collection – e.g., via bank account garnishment, wage deduction, or the seizure of real or personal property.
In practice, the most effective tool is garnishment of the debtor’s bank account, which may result in payment within weeks – provided the debtor has sufficient funds available. Seizure and sale of movable or immovable assets usually take longer, and such assets often sell below market value at auction.
Liquidation Proceedings – A Drastic Measure
Liquidation proceedings aim to dissolve an insolvent company without legal succession, distributing its assets among creditors. Although not primarily intended to enforce individual claims, creditors increasingly initiate liquidation threats even against otherwise solvent companies. The mere risk of liquidation has a strong deterrent effect: the debtor loses control over the company, all debts become due immediately, and banks may terminate loan agreements.
Therefore, many companies will do everything they can to avoid liquidation and opt to pay the creditor instead.
It is also important to note that passivity or delay may itself trigger liquidation. If the debtor fails to dispute the creditor's claim within 20 days after the due date – or by the time a properly worded payment demand is received – they may no longer challenge it later. Their only option may be to pay the debt to avoid liquidation. For this reason, a well-crafted payment demand can be a powerful tool against a non-paying debtor who does not dispute the claim in time.
Criminal Complaint – Under the Shadow of Suspicion
Many creditors wonder: cannot we just go to the police if the debtor fails to pay? After all, it may feel like theft or fraud.
The reality is more complex. Mere non-payment is a civil matter and does not, in itself, constitute a crime. However, if the debtor intentionally misled the creditor from the beginning (e.g., never intended to pay or repeatedly promised payment without fulfilling it), then the crime of fraud may be suspected, providing grounds for filing a criminal complaint.
This must be carefully assessed on a case-by-case basis. It is wise to involve a lawyer in preparing the complaint to avoid legal pitfalls (e.g., false accusations are also punishable).
Criminal proceedings can have a strong deterrent effect and may motivate the debtor to pay. They are also cost-effective: no fees are payable for filing a complaint, and the investigative work is handled by the police, not the creditor. However, the creditor loses control over the process, as the investigation is carried out by the police and depends on their capacity and resources.
Summary
Creditors have a wide array of legal tools at their disposal for handling non-payment. Among these, the payment order procedure is typically the fastest and most cost-effective, while liquidation proceedings exert the greatest pressure. In some cases, criminal law may also come into play –especially where fraud is suspected.
However, there is no one-size-fits-all solution: the best legal course of action must always be chosen based on the specific circumstances of the case, the amount owed, the debtor’s behaviour, and the creditor’s goals.