Debt Collection in Kenya

Debt collection is a process that involves recovering money owed by individuals or businesses to creditors. This process is essential for a stable economy in Kenya because by ensuring that debts are repaid, it supports business operations, lending, and investment, thereby fostering financial trust and responsible borrowing and lending practices. Debt collection encompasses various steps taken by a creditor or their agent to recover outstanding payments.

These actions may include initial contact or sending reminders, pursuing legal measures, and enforcing court rulings, all aimed at obtaining repayment of the debt, including the principal amount, interest, and any related fees.

Kenya has a robust legal framework that governs the debt collection process in Kenya. These include:

1. The Civil Procedure Act which outlines the legal procedures for pursuing debt recovery through the court system, including filing lawsuits and enforcing judgments.
2. The Contract Act which establishes the legal basis for enforceable agreements and debt obligations.
3. The Debt (Summary Recovery) Act which provides for the procedure of recovery of civil debts in Kenya. It asserts that any sum declared by any Act, whether past or future, to be a civil debt recoverable summarily may be recovered in the court of any magistrate of competent jurisdiction in the manner prescribed by the Act.
4. The Auctioneer’s Act: Regulates the operations of debt collection agencies and auctioneers ensuring ethical practices.

The debt recovery process in Kenya has various processes, each bearing their advantages and disadvantages.

The processes vary depending on the type of debt and the nature of the creditor. In choosing a debt recovery approach, the creditor will evaluate the most effective way to encourage the debtor to settle their debt. Debt recovery proceedings typically begin with the creditor sending a demand letter to the debtor, allowing them a period to respond and make payment.

These approaches include:

i) The pre-legal approach
ii) The Legal approach
iii) The enforcement of Judicial decisions that arise out of court processes

i) The Pre-Legal Process

This stage focuses on collection of the debt without invoking the court processes. It involves clear and amicable communication that includes sending of demand notices and using a mutual approach to settle the debt.

The Creditor does send the debtor a demand notice which clearly outlines the total amount owed, which includes both the principal and any accrued interest, the repayment deadline, the possible repercussions for failing to pay, like late fees or legal action.

Sometimes, a detailed breakdown of the debt is recommended in order to provide clarity on the debt.In this instance, there creditors may also be willing to re-negotiate the payment plans which would include instalments, consideration of other methods of payment as well as acceptance of partial payments subject to their agreement.

ii) The Legal Process

This is often an escalation of futile attempts of the Pre-legal processes. It entails seeking repayment through the court system. This step is pursued when efforts to resolve the matter amicably before entering the legal process fail.

This involves filing a law suit, whereby the creditor or their advocate starts the legal process by filing a lawsuit in the appropriate Court, providing a plaint with details of the claim, including the amount owed and prior recovery attempts. They must also submit supporting evidence like contracts and invoices, and pay the requisite court filing fees.

The court then proceeds to listen to the respective cases whereby the creditor must demonstrate the validity of the debt and the debtor’s responsibility to repay by providing evidence like contracts and invoices, while the debtor can challenge the claim, dispute the amount, or explain their inability to pay.

A judgement is then rendered which is always a determination of how the respective cases were argued.

The Small Claims Court handles debt cases of matters below 1 million. Any figure above one million to 20,000,000 is handled by the Magistrates Courts depending on their jurisdictions and the monetary limits. Figures above 20,000,000 are handled by the High Courts.In summary the legal process entails various steps that seek to ensure compliance to the standard legal procedures and the effectiveness of the process. These include;

1. Issuing of a demand letter to the debtor; This is always the first process while instituting a legal procedure for debt collection. This process involves sending a letter to the debtor requesting payment of the outstanding amount. A demand letter allows both parties to discuss appropriate payment options, helping to preserve their relationship.
2. Filing a debt recovery suit. This is instituted in instances where debtor does not comply with the demand letter. The suit is filed in the relevant courts as outlined earlier, depending on the monetary value owed and the jurisdictions of respective courts.
3. Enforcement of judgment: When a court hears the case and determines that a debt is owed to the creditor and orders the debtor to pay, the creditor should obtain a court decree and formally demand payment from the debtor. If the debtor fails to pay within the specified timeframe, the creditor can then hire auctioneers to seek warrants for attaching and selling the debtor’s property. This should be done as espoused in the Movable Property Security Rights Act, 2017 which was enacted to facilitate the use of movable property as collateral for credit facilities.

Conclusion

In conclusion, the debt collection process involves a careful comprehension of legal systems and practical approaches. It is necessary to ensure that established protocols are followed and the legal remedies are applied wisely as this improves the chances of creditors recovering their debts. Moreover, the parties involved should ensure transparency, fairness, and adherence to regulatory standards during the process are maintained.

The opinion expressed here in is purely that of the author. For further inquiries please contact our office on 0742028500