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Debt & Bankruptcy in Turkey

This guide was written by Burak Orkun, Managing Partner at Orkun & Orkun (info@orkunorkun.com) in collaboration with Guides.Global (office@guides.global).

It was written on 19 July 2017. The law and practice in Turkey change all the time. Our guides are updated as frequently as possible - typically every three years - but may be out of date.

Our guides are prepared by professionals from many countries. They are, of necessity, both brief and general and can take no account of your personal circumstances. They are intended to be a good introduction to the subject BUT ARE NO SUBSTITUTE FOR PROPER PROFESSIONAL ADVICE, which our contributors will usually be happy to provide upon request.

The advice and opinions contained in the guides are those of the author and are not necessarily those of Guides.Global.

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The scope of this guide

This guide is about debt and bankruptcy: how debt is viewed in Turkey, how it's dealt with, and how bankruptcy works.

Introduction

In Turkey, debt is no longer treated as seriously as it perhaps was in years gone by. It is perfectly socially acceptable to incur debt, and most businesses or individuals have debt of some kind, but people are very cautious about incurring debt and there is great social disapproval if people do not repay their debts when they are due.

There is a large amount of debt collection and enforcement carried out through the courts.

In Turkey, there is a completely separate department of the court that deals with the collection of debts and the enforcements of any judgements awarded in your favour. This is the Court of Enforcement proceedings.

If you are owed money, or if you have won a court case and the person has not done what the court ordered, you will make an application to that court.

Dealing with debt in Turkey

If you have an existing court order

You can go directly to the enforcement process. See below.

If you have paper proof of debt

If you have paper proof of the debt (for example, a cheque), there is an accelerated process by which you can proceed to enforcement.

Non-payment of a cheque has been a criminal offence since August 2016.

If you have a debt claim without a paper acknowledgement of debt

These are, typically, unpaid invoices. These are treated as an ordinary dispute and resolved through the civil courts.

Once you’ve obtained a court order, you proceed to the enforcement operation.

Enforcement operation

When enforcement proceedings are started, the court will issue a summons to the debtor and ask why the debt has not been paid. The debtor has five days in which to reply to this summons.

If he does not reply, or if the Court decides that his objection to payment has no legal validity, it will decided how to collect the debt.

For money debts, the basic remedy is to seize assets (a car, a boat, a house, the debtor’s entitlement to salary, the balance in his bank account etc.) and then, if necessary, sell them by auction. The auction is arranged by the Enforcement Department. 

For obligations that cannot be measured in cash (such as surrendering possession of a building or handing over a child to the other parent), the Enforcement Department is entitled to use force.

How long does this take?

The time will vary dramatically.

How much does it cost?

A fee will be payable to the Court. In addition, you will incur the fees of any lawyer that you appoint to deal with the case. These will not be recoverable.

Bankruptcy in Turkey

Turkey is unusual in that only businesses can be made bankrupt and, by doing so, can be relieved of their debts. An individual person cannot seek relief from debt: the debt will follow them forever.

If a business is unable to pay its debt, it can be made bankrupt.

They can either apply for their own bankruptcy or someone who is owed money can apply for them to be made bankrupt compulsorily. The application is made to the Commercial Court. Bankruptcy proceedings are normally quite quick.

Last year (2016) there were 12,000 companies declared bankrupt in Turkey.

The effect of bankruptcy in Turkey

Once an application has been made then, unless the sum claimed is paid or the debtor can show a good legal reason for non-payment, a bankruptcy order will be made. The result of such an order is that the court appoints a lawyer as the person’s bankruptcy administrator.

The bankruptcy administrator takes control of all of the business’ assets and either sells them or allocates them directly to the creditor.

Recovery rates

Recovery rates on a bankruptcy in Turkey are low. By the time things get this far, most people will lose their money.

Alternatives to bankruptcy in Turkey

Turkey has an arrangement whereby a business in financial difficulty can apply to be placed in protective measures. This is called ‘Postponement of Bankruptcy’ and is similar to the concept of Chapter 11 in the United States. If the application is granted, nobody will be able to take enforcement proceedings against the company for a period of one year. That period can be extended up to a maximum of four years.

Conclusion

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Other guides of interest

 Description Link 
Turkey Country Guide
Essential facts and figures about Turkey
Click to see this guide
Court Cases & Disputes in Turkey
How to deal with legal cases in Turkey
Click to see this guide

Readers' Comments

 

Further information?

I hope you have found this guide useful. If you need any further help, please contact me.

Burak Orkun

19 July 2017


 

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