Legal allocation sequence in collection claim
If a claim for payment of an amount of money is not complied with, the claim increases. Interest, collection costs and possible court costs are to the account of the debtor. If the debtor makes several partial payments, it is sometimes unclear which part of the claim has already been paid. The law therefore stipulates an allocation sequence. Dutch collection lawyer Thomas van Vugt explains, based on a recent case, how the legal allocation sequence works.
Collection proceedings for outstanding claim
In a collection dispute a debtor had been sentenced in his absence to pay the creditor a principal sum of EUR 19,000 with interest. He was also sentenced to pay almost EUR 1000 in court costs and bailiff’s costs. The debtor contests the ruling. He states that he has already paid a (minor) part of the principal sum. He is also of the opinion that too much costs are charged.
Debtor contests sequence of partial payments
In the proceedings opposing the claim, the creditor is asked to specify how much the debtor has paid so far and how much is still outstanding. The debtor paid over EUR 2,350.- . The costs (court costs and bailiff’s costs) charged are approximately EUR 2,100. The debtor’s payment was first used to pay those costs. The remainder was used to reduce the interest, but there is still outstanding interest. According to the creditor, the debtor has not even started redeeming the principal sum.
Legal allocation sequence
The allocation sequence is stipulated in article 6:44 of the Dutch Civil Code. This states that the payment of an amount to be allocated to a certain commitment is used first to reduce the costs (1), then to reduce the interest owed (2) and then to reduce the principal sum (3) and the current interest (4).
Costs: also extra-judicial collection costs!
The costs are the court costs and the extra-judicial collection costs. Interest owed is the interest already owed that is due and payable. Current interest is interest occurring and gradually accruing since the due date, which is not yet due and payable. The principal sum is the original claim by the creditor (therefore excluding costs and interest). According to the legal allocation sequence the debtor has not in fact paid anything on the main amount. He is dismissed on that issue.
Extra-judicial collection costs wrongfully granted
The subdistrict court agrees with the debtor that the extra-judicial costs that were granted in the debtor’s absence are too high. The collection activities that were conducted only consisted of one summons, a sole settlement proposal, gathering simple information and the usual compilation of a file. The extra-judicial costs concern activities which the sentence for payment of court costs is supposed to cover. Only collection costs incurred for extended activities are eligible for compensation.