What is a claim and what are its types?

A receivable is one of the basic concepts of the legal and commercial world. In this relationship, a creditor is a person who has the right to demand certain performance from the debtor, whether it is a sum of money or another form of obligation. That is, a person to whom someone owes a debt. The debtor, on the other hand, is the person to whom the obligation to fulfil that obligation belongs. That is, the person who must pay. The debtor’s obligation to perform is called a liability, while the creditor’s right to its performance is called a claim.

What is a claim?

A claim is a legal right of one person (the creditor) to receive performance from another person (the debtor). This claim arises when the debtor does not voluntarily fulfil its obligations and does not pay its debts and the creditor has a legal right to enforce performance on the basis of a contract or other legal relationship.

A claim can take various forms. Most often, however, it is a sum of money to be paid by the debtor. However, there are other types of performance, such as delivery of goods, provision of services and similar obligations.

We should also mention that a claim does not only have a certain moral aspect, but is a legally enforceable matter. This means that if you owe someone and you have a contract to that effect, etc., that person, as a creditor, can take legal action to ensure that you fulfil the performance, i.e. what you promised to do through the contract. Otherwise, you may also face legal enforcement.

Receivable and payable – two sides of the same coin

A claim and a liability relate to the same legal relationship. Each concept forms an imaginary one side of a coin. While the creditor has a claim and the right to demand its performance, the debtor has an obligation and the duty to provide that performance. This relationship arises in virtually every commercial transaction.

To better understand this, imagine, for example, a situation where Paul makes a loan to Hannah. Paul, the creditor who lent the money, has a claim to repay it – that is one claim. Hanka, on the other hand, is the debtor and has an obligation to return the money to Paul – that is her obligation. A claim and an obligation are therefore interrelated legal categories.

On what basis can a claim arise?

A claim most often arises from a legal act. The most common cases of the creation of a claim include the conclusion of a contract, a court decision or the enactment of a law.

Contracts – Specifically, these include a lease, a purchase agreement or a loan agreement. In each of these, one party has the right to demand performance from the other. In a contract of sale, payment must be made for goods or services, in a contract of lease an agreed amount for housing and so on.

Court order – a claim can also arise from a court order, where the court orders the debtor to pay a certain amount or other obligation. This is often the case in debt litigation, where the court rules in favour of the creditor and orders the debtor to pay, for example, damages or other claims.

Statute – in some cases, debts arise directly from the law, for example when there is an obligation to pay tax or other statutory charges. A typical example is therefore claims by the tax authorities against tax debtors.

Types of claims or how claims are divided

Receivables can be classified according to several criteria, which is important for their management and recovery.

Classification of receivables according to the subject matter of the transaction

• Monetary claim – the debtor is obliged to pay a certain amount of money to the creditor. This type of claim is the most common and well-known, as most commercial and contractual relationships are based on financial payments.
• A claim in kind – the debtor must provide a performance other than monetary, for example, to deliver goods, carry out construction work or provide a specific service.

Classification of receivables by maturity

• An overdue receivable is one that is past due and the creditor has the right to collect it. For example, if an invoice is issued with a 30-day due date and this date has already passed, the receivable becomes due.
• An outstanding receivable is a receivable that is not due for payment until a future date. This may be the case, for example, of a loan that is due to be repaid in a number of years but only a certain amount or none is yet due.

Classification of receivables by collateral

• Secured receivables are those receivables that are secured by some form of guarantee, such as a mortgage on real estate, a third-party guarantee or a bank guarantee. These claims provide the creditor with greater certainty that it will be able to satisfy its claim even if the debtor defaults. In other words, the lender or provider has a kind of back door in case the borrower defaults.
• Unsecured claims are those claims that have no collateral. Here, the creditor has no direct guarantee that the claim will be repaid, which puts the creditor at a higher risk. These claims are typical in normal commercial relationships where there are no additional guarantees. In short, the seller has to hope that he will actually receive payment for his goods.

How to assert your claim or when the debtor does not pay

If a creditor has a claim and the debtor does not voluntarily fulfil his obligation, the creditor can choose from several ways to enforce the claim. We deal with debt recovery in detail in a separate article, so we will just outline the methods of recovery here.

The simplest and most common way is to seek performance first out of court, if both parties can reach an agreement. In most cases, a demand for payment is sufficient. If out-of-court enforcement fails, court enforcement follows.

If the debtor is unable to pay his debts, insolvency proceedings may be opened. In these proceedings, creditors file their claims and the order in which the claims are satisfied is determined according to the law. Unfortunately, claims in insolvency are often not satisfied in full.

You can no longer recover a time-barred claim

Every claim has a limitation period. If you, as a creditor, do not assert your claim within the statutory period, the claim is time-barred. This means that you can no longer claim payment even through the courts. Although the claim itself is not extinguished, and the debtor can fulfil it if he wants to, you cannot force him to do so. The general limitation period is three years, but this period always depends on the specific legal relationship from which the claim arose.

Summary

A claim is a creditor’s basic legal right to receive payment from a debtor. Claims arise from various legal transactions and take different forms. They can be divided according to the security, the maturity or the object of performance. Whether they are business, personal obligations or large-scale financial transactions, claims play a vital role in all areas of the economic and legal world. If you want the debtor to live up to his or her obligations and you to get what you are entitled to, do not hesitate to contact our law firm.