Securing and Confirming Debts (Part One) - Key Tools for Legal Certainty

18.6.2024

In both business and everyday life, we often encounter the need to ensure the proper and timely fulfillment of our receivables by the counterparty. For these purposes, the legal system offers two basic groups of tools - securing and confirming debts. These institutes are essential means to ensure financial stability and legal certainty. The legal regulation is mainly found in Act No. 89/2012 Coll., the Civil Code (hereinafter referred to as the "CC"), which specifies the individual types. The aim of these tools is to provide the creditor with greater certainty that their receivables will be satisfied, even if the debtor fails to fulfill their obligations properly and on time.

What is Debt Security?

Debt security is a mechanism that provides the creditor with a guarantee that their receivable will be met even if the debtor fails. These are means by which the creditor is enabled to seek compensation from a third party or specific property of the debtor. Debt security is regulated in the provisions of Section 2010 of the CC et seq., according to which a debt can be secured if a third party undertakes to the creditor or for the creditor's benefit for the debtor's performance or if someone provides property security that the debtor will fulfill their debt.

Forms of Debt Security

The most common forms of debt security include surety, assumption of debt, or pledge. Other forms include financial guarantees, agreements on wage deductions or other incomes, or for instance, security transfer of rights. Debt security is used in practice in various situations, especially in lending, financing business transactions, or leasing real estate. Specific cases may include mortgages and loans, borrowings, or business transactions.

What is Debt Confirmation?

Debt confirmation is another tool in the field of law and finance. It includes measures that increase the probability of the debtor fulfilling their obligations without providing direct security. These measures have more of a preventive nature and serve to strengthen the legal position of the creditor. The legal regulation of debt confirmation is also contained, among others, in the CC.

Forms of Debt Confirmation

There are several basic forms of debt confirmation, but the most common are clearly contractual penalties and debt acknowledgment. Other forms include promissory notes or notarial deeds with direct enforceability. These institutes are most often used in the context of business transactions, but, for example, contractual penalties are a very frequently used institute even in everyday civil life.

Conclusion

Securing and confirming debts are key tools that ensure the debtor fulfills their obligations to the creditor. They provide the creditor with additional protection and increase the likelihood that their receivables will be satisfied. It is not necessary to choose only one tool for securing receivables. It is possible to combine several of the aforementioned tools to secure one debt.

In the following article, we will take a closer look at the different types of debt security and compare their advantages and disadvantages for practical use.