The claim is often not just about the debt (principal) itself. Creditors also have the right to recover ancillary debt, which may include interest on late payment, contractual penalties and costs associated with the recovery of the debt. Read on to find out what all can be included in ancillary debt and what the law allows for its recovery. We will also explain how set-off works and how it is applied in practice.
Ancillary claims are a set of secondary claims that arise together with the main claim (principal) and are closely related to it. In other words, they are additional amounts that are added to the original claim (even the uncollectible one) and the creditor is entitled to claim them. According to the Civil Code, the following items in particular are accessories to a claim:
Do you want to get the accessories you are entitled to in addition to the unpaid debt?
Not everyone knows that if a debtor fails to pay on time, he or she is entitled to interest on late payment and other expenses related to the recovery of the debt. If you do not know what you can actually demand from the debtor, contact our law firm. We will be happy to advise you and help you prepare all the necessary materials to recover your money, including interest and other accessories.
Default interest is the most common accessory to a claim. Their main purpose is to compensate the creditor for late payment and to motivate the debtor to fulfil his obligations on time.
The calculation of default interest in the case of an accessory claim is governed by the Civil Code and the Government Regulation on the amount of default interest. The basis is the determination of the amount due, the number of days of delay and the current amount of statutory default interest. The repo rate announced by the Czech National Bank also comes into play in this case.
The statutory amount of default interest may change depending on changes in the Czech National Bank’s repo rate. So if you want to assess interest to someone, keep an eye on the current legislation and decrees. However, it is even better to entrust the whole matter to a lawyer who will handle these formalities for you and make sure they are correct. However, in normal contractual relations, the creditor and the debtor can also negotiate higher interest rates between themselves, provided that both parties agree and agree on them.
Example of calculation: if the debtor is due to pay CZK 200,000 and pays late, the creditor can demand interest on the late payment after 60 days of delay in the amount of CZK 200,000 × 0.10 × (60 / 365) = CZK 3,287.67.
Interest on late payment is regulated by the Civil Code and by government regulation. The creditor is automatically entitled to interest as soon as the default occurs. So there is no need for the interest to be explicitly agreed in the contract and yet the creditor is entitled to it. Their recovery is a standard part of the recovery procedure, both in court and, where appropriate, in enforcement proceedings.
Accessories often make up a substantial part of the amount recovered, especially for long outstanding debts. Interest on late payment and contractual penalties can add significantly to the debt.
A contractual penalty is defined as an agreed penalty between the creditor and the debtor for any breach of contractual obligations. If you want to claim liquidated damages, you must have them explicitly agreed in the contract, unlike interest on late payment. In this case, it is also not enough to specify and agree on the amount of the penalty, but you also need to agree in the contract the conditions under which the penalty can be claimed.
Tip: Did you know that there are priority claims that give creditors priority in compensation? These include child support or debts owed to the state.
A condition of the validity of contractual penalties is that they must not be unreasonable. If the amount of the penalty would be contrary to good morals (for example, excessive), the court may reduce the penalty or declare it null and void. What constitutes good morals or a reasonable amount is usually the subject of heated discussion and dispute in such cases. As a practical matter, contractual penalties should be in proportion to the value of the obligation and the consequences of the breach of contract. Extremely high contractual penalties may subsequently be considered void by the court because they would be contrary to the principles of fair dealing.
Contractual penalties are enforceable. They form part of the accessories to the debt, so that the creditor can recover them together with the main debt. In practice, contractual penalties are often the subject of disputes, especially in cases where the debtor considers their amount to be excessive.
Tip: If a creditor is asking you for an unreasonably high amount for late fees or other penalties, contact an Affordable Advocate. Our attorney will review all documents and help you resolve the situation.
Another important part of the accessories of a claim is the costs incurred by the creditor in the recovery of the debt. These may include, for example:
The costs associated with the recovery of the debt must be incurred efficiently, otherwise the creditor would not be able to claim them from the debtor. This means that they must be necessary to obtain satisfaction of the claim and in a reasonable amount. The courts assess whether the costs were reasonable in the circumstances.
In practice, accessories can be a key factor in debt recovery. Particularly for long outstanding debts, interest on late payments and contractual penalties can significantly increase the total amount owed. In addition, court and enforcement costs can place an additional financial burden on the debtor, which can complicate their ability to repay. Insolvency or foreclosure is not an isolated impact. On the other hand, the creditor is entitled to claim compensation for delay, penalties for breach of contract and payment of any costs incurred in connection with the recovery of the debt.
Tip: If you are unable to collect your debt, you can use a so-called assignment of debt. Simply put, this means that you sell your claim to another creditor, who then gets all the rights associated with it and can collect it from the debtor himself. You thus get at least part of your money back and do not have to deal with the recovery any further.
Ancillary debt is an important part of any debt. Creditors are entitled to interest on late payment, contractual penalties and reimbursement of the costs of recovery. This claim can significantly increase the total amount a creditor recovers from a debtor. While a creditor is entitled to interest on late payment by law, it can only recover liquidated damages if the amount and terms of the liquidated damages are clearly defined in the contract.
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