Debtor's Assets Used as Securities to Pay Off Debt

Securities is one way to protect creditors from debtors who are unable to pay off their debts. However, not all debt agreements agree on the provision of giving any securities. Against such conditions raises the question of how the legal protection for creditors in the event of the negligence of the debtor who does not pay his debt. Article 1131 of the Indonesian Civil Code has succeeded in providing a solution to these problems.

Article 1131 of the Indonesian Civil Code: “All movable and immovable assets of the debtor, either present or future, shall be regarded as securities for the debtor's personal agreements.”

The article regulates general securities, which gives the creditor the right to get debt repayment from the debtor's assets in the event that the debtor is unable to pay off his debt. General securities are securities that appear directly, meaning that general securities will appear even though they are not previously agreed upon by the debtor and creditor. However, the creditor cannot take directly the debtor's assets. Why is that? Because there are legal procedures that must be followed by creditors to receive repayment of their debts through debtor assets.

To get the debt payment, first of all, the creditor must send a warning letter to the debtor as a form of good faith in reminding the debtor to pay his debt. Then, if the debtor ignores the warning letter sent by the creditor and/or does not show good faith to pay the debt, the creditor can file a default lawsuit against the debtor through court. In addition to the claim for default, the creditor can also request the court to impose a security confiscation on the debtor's assets. The confiscation of securities functions so that after the decision of the panel of judges has permanent legal force and the debtor is declared negligent, the debtor's assets charged with confiscation of securities can be auctioned off. The proceeds of the assets auction will become the rights of the creditor as debt repayment.

Therefore, before filing a breach of contract, it is advisable to check the debtor's assets for confiscation. If it is found that the debtor’s assets are not sufficient to pay off the debt, then the filing of a default lawsuit will be in vain and the creditor will not get the payment of the debtor's debt.

Thus, the explanation above is a brief description of the debtor's assets securities as debt repayment. If you are interested in knowing more about this, you can contact our law office, Suria Nataadmadja & Associates Law Firm.

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