Creditor Protection and Debt Discharge Mechanisms in Civil Law

Conservative Measures in Debt Collection

A. Subrogation Action

The assumption is that a debtor does not exercise the rights that would lead to assets entering their property, which are required for the satisfaction of the creditor. If this occurs, the creditor is allowed to exercise the right of substitution (subrogation) for the sole purpose of ensuring those goods enter the debtor's required estate.

There are two characteristics required for the practice of substitution (subrogation):

1. The debtor's assets are insufficient for the satisfaction of the creditor.
2. The rights being exercised are not those which, by their nature or disposition of law, must be exercised solely by the debtor (i.e., highly personal rights).

B. Revocation Action (Paulian Action)

The revocation action is initiated when the debtor performs acts involving fraud against the law (*fraus legis*). These acts decrease the value of the debtor's assets to the extent that the creditor does not have enough to collect their credit. Unlike other conservative measures, there is an active conduct by the debtor that causes the insolvency.

For these fraudulent acts to be challenged, the following requirements must generally be met:

• The act must be detrimental to the creditor (eventus damni).
• The debtor must be aware that the act results in their insolvency and corresponding prejudice to the creditor (consilium fraudis).
• The third-party purchaser must also be aware of the damage (if the purchase was onerous).
• If the property was acquired gratuitously (for free, without consideration), the act is always considered fraudulent, regardless of the third party's knowledge.

When these requirements are met, the creditor can challenge the acts as fraudulent and request that they be declared ineffective, allowing the creditor to attack the assets.

Payment by Consignment (Tender of Payment)

Payment must generally be received by the creditor. However, the creditor may deny payment if it does not correspond to the exact benefits initially agreed upon. Sometimes, the debtor cannot make payment due to circumstances unique to the creditor. These circumstances include:

• The creditor is absent and does not have legal representation.
• The creditor is unable to receive payment.
• The creditor has lost the title of the obligation.
• The creditor refuses to admit the payment.
• If there are several creditors, there is difficulty identifying which are entitled to collect.

In these cases, the debtor is recognized the right to discharge the debt through consignment (*consignación*). Consignment involves depositing the things owed, particularly concerning obligations to deliver specific items.

For judicial efficiency, it is required that, prior to the deposit, the debtor announces the action to all people interested in the fulfillment of the obligation and ensures that the requirements of payment are met. After the deposit is made, the interested parties must also be notified.

If the provision and disclosure are correct, the debtor may request the judge to cancel the obligation. Alternatively, the creditor may accept the consignment, leading to the extinction of the obligation and the liberalization of the debtor.