Bad Faith Denial Compensation

Bad faith denial compensation is the compensation a debtor who unjustifiably objected to enforcement without judgment is ordered to pay the creditor (Enforcement and Bankruptcy Law Art. 67/2). Its purpose is to deter debtors from objecting merely to delay payment.

Conditions

• The creditor started enforcement without judgment and the debtor objected.
• The creditor filed an action for annulment of objection or asked the enforcement court to remove the objection.
• The debtor’s objection is found unjustified.
• The claim is liquidated, that is, its amount is fixed or ascertainable by the debtor.
• The creditor requests compensation.

The debtor’s bad faith is not required; it is enough that the objection proves unjustified.

Rate

The compensation cannot be less than 20% of the amount awarded. The court may set a higher rate depending on the circumstances. It is calculated only on the part objected to and found unjustified.

Bad Faith Compensation Against the Creditor

If the enforcement proves unjustified and the creditor brought it in bad faith, compensation of not less than 20% of the claim is awarded against the creditor at the debtor’s request. This deters unfounded enforcement.

In a Negative Declaratory Action

A similar regime applies in a negative declaratory action brought by the debtor: if the case is lost and enforcement was stopped by an injunction, the debtor compensates the creditor’s loss at not less than 20%; if the debtor wins, compensation may be awarded against the creditor.

In Practice

Denial compensation is a pressure tool steering disputes towards settlement from the creditor’s perspective. Debtors should carefully assess whether there are valid grounds before objecting to a payment order.