Collateral transfer - a way to recover money?

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Are you looking for a way to secure your receivables? Collateral transfer is a solution that may contribute to the effective recovery of receivables from the debtor. Moreover, the agreement concerning this type of protection of claims is structured in accordance with the principle of freedom to conclude contracts. Read about a collateral transfer.

Collateral transfer - definition

Security of receivables and transfer of ownership of a movable property - this is how you can briefly define a security transfer. Both legal entities and natural persons can take advantage of this option. The security transfer is carried out as follows:

  1. The debtor transfers the ownership of the movable property to the creditor. Thus, the new owner of, for example, a car is the creditor.
  2. The debtor pays the liability to the creditor.
  3. The creditor performs the reverse operation, i.e. transfers the ownership of the movable property to his former debtor.

This means that the movable property first belongs to the debtor who, under a security transfer agreement, transfers the right to it to the creditor, and after the debt is repaid, the item goes back to the original owner (former debtor). This procedure does not even require moving the movable property that secures the debt, and the provisions in the contract may be quite loose in accordance with the principle of freedom to conclude contracts.

How does a collateral transfer work?

In accordance with the concluded contract:

  • If the debtor fails to settle the obligation, the creditor retains the property transferred to him, e.g. a car, electronic equipment, and even machines owned by the enterprise.
  • If the debtor pays his obligation, the creditor cannot refuse him to transfer ownership again. If this happens, the former debtor will have to start a civil case due to the creditor's failure to comply with the terms of the contract.
  • If the debtor does not pay the obligation and does not want to return his property (the object securing the debt) to the creditor, the creditor must call the police, which will intervene.

Collateral transfer is often used to secure cash loans. One of the provisions regulating the provisions in the security transfer agreement is Art. 101 paragraph. 1 of the Banking Law:

Security of the bank's claims may be made by transfer to the bank by the debtor or a third party, until the debt is repaid with interest and commission due, ownership of movable property or securities”.

Before you sign a security transfer agreement, read all its provisions very carefully, especially when it comes to the amount of the debt to be repaid and the repayment date or schedule according to which the debt is to be settled. If you are not sure whether this is a good method of debt protection, then choose another solution, e.g. a movable pledge, mortgage or registered pledge.