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Calculate interest on arrears
What is interest on arrears
Interest on arrears applies to money debts with which the debtor is in arrears. The default occurs through a reminder (sample letter) or failure to perform despite a specific or determinable time of performance. The purpose of the default interest is to compensate the obligee for the damage caused by the delay in performance. In addition, the interest on arrears is intended to improve payment behavior through deterrence with increased interest rates (see recital 16 of the Late Payment Directive, EU Directive 2000/35 / EC).
Occurrence of default and legal consequences
Onset of default
Section 286 of the German Civil Code (BGB) regulates default of the debtor. Basically, the debtor comes a due claim in the event of non-performance on a reminder delayed. Default in payment is understood to be a delay in payment after the debtor has defaulted. Debtors cannot take their time to pay any debts they owe.
Also without a reminder if the default occurs in the case of financial debts, if a payment date is determined or determinable is (e.g. by contract). There is no need for a reminder if the debtor does not perform 30 days after the due date and receipt of the invoice. For consumers, this only applies restrictively if they have been advised of this consequence in the invoice.
The reminder is also dispensable if the debtor seriously and finally refuses to fulfill the service and in special cases in which a mutual balancing of interests justifies an immediate default.
An example case: the driver refuel. Then he forgets to pay for gas at the gas station and drives away.
The legal consequences of default of the debtor are:
- The debtor has to pay default interest.
- The debtor has to compensate the damage caused by default. Often times, these are the legal costs.
- The dunning costs also fall under the damage caused by default. This means that dunning costs for the first reminder can only be claimed if the debtor was already in arrears when the reminder was issued. As shown above, default can also occur, for example, through simple non-payment in business transactions. In the case of dunning costs, it should also be noted that generally only postage and material can be charged, but not general personnel costs. Reminder costs between 1.20 € and a maximum of about 2.50 € can be considered acceptable according to these standards. For example, the Munich Higher Regional Court considered a € 5 lump sum for dunning costs to be ineffective. According to the Munich judges, an energy supplier should not charge more than € 1.20 in dunning costs.
- Under certain conditions, the defaulting debtor is entitled to a flat-rate fee of € 40.
- There are also other important legal consequences that must be checked in each individual case. For example, there may be a statutory right of withdrawal (Section 323 BGB). A claim for damages instead of performance or reimbursement of expenses is also possible. With the onset of default, there is also increased liability (cf. § 287 BGB).
Damage caused by default: attorney's fees
With the occurrence of default, in addition to the interest, damage caused by the default (default damage) must also be reimbursed. In many cases, the damage lies in the legal costs. This means, In principle, you can hire a lawyer to enforce your claim and claim back the costs you incur as a result from the debtor. According to the constant jurisprudence of the Federal Court of Justice, collecting a claim for payment from the perspective of the creditor is also In simple cases, the appointment of a lawyer is appropriate and necessaryso that you can hire a lawyer even in unproblematic situations and demand reimbursement of the costs incurred from your debtor. A particular complexity of the case is by no means necessary. The basis for claims for damage caused by delay is regulated by law in Sections 280 Paragraph 1, Paragraph 2, 286, 288 Paragraph 4 of the German Civil Code (BGB).
what interest rate
Depending on the legal transaction, different default interest rates are to be used as a basis for the interest calculation:
If a consumer (§ 13 BGB) is involved in the legal transaction, set the interest rate to 5 percentage points above the base rate.
If no consumer is involved in the legal transaction, then the interest rate should be selected to be 9 percentage points above the base rate.
Consumer credit agreement
In the case of real estate consumer credit agreements, the default interest rate is 2.5 percentage points above the base rate (Section 497 (4) BGB).
If the donor is in default of a donation agreement, no default interest can be charged in accordance with Section 522 of the German Civil Code (BGB).
for construction contracting regulations (VOB / B)
Until 2002 the VOB / B contained special regulations on default interest. There are no longer any special regulations. Section 16 (5) of the VOB / B refers to Section 288 of the German Civil Code (BGB). Therefore, the general rules for default interest apply.
if the UN sales law applies
According to UN sales law, there is an obligation to pay interest in the event of default. Art. 76 CISG refers to the applicable national law, which is to be applied according to the conflict of law rules.
The base rate
The base rate is the only official market rate. It is determined and published every six months by the Bundesbank. The reference value for the calculation is the interest rate for the most recent main refinancing operation of the European Central Bank before the first day of the relevant half-year. This is stipulated in Section 247 of the German Civil Code.
In the first half of 2002 the base rate was 2.57%. Due to the low interest rate environment, it fell further and further. The interest rate has been negative since 2013 until today.
The base rate is probably the most relevant for calculating interest on arrears (Section 288 BGB), litigation interest (Section 291 BGB) and in the cost setting procedure in civil proceedings (Section 104 ZPO).
How is the default interest calculated?
The interest can only be calculated with the respectively applicable base rate using a normal formula. If the interest is to be calculated over several interest periods, a total over these periods is necessary. The following formula shows the calculation of interest on arrears over several interest periods:
j = number of half years in the interest period
= interest-bearing days in the half-year
= Base rate for the respective half-year
Interest on gross or net amount?
In principle, default interest can also be charged for VAT. You can enter the amount in the calculator as a gross amount.
Employees can demand interest on arrears for the gross wage, see the case law of the Federal Labor Court.
40 € lump sum for default costs
According to Section 291 (5) of the German Civil Code (BGB), there is a claim to payment of a flat rate of € 40 as damage caused by default. The prerequisite for this is that it is a claim for payment and the debtor is not a consumer. If costs arise in legal proceedings as damage caused by delay, these are to be offset against the 40 €.
Default fee for employees
It has long been controversial whether employees can also ask their employer to pay the € 40 lump sum for default costs. In its judgment of 25.9.2018, Az. 8 AZR 26/18, the BAG decided that employees are not entitled to the lump sum for default costs. In terms of wording, the regulation on the flat-rate fee for default costs, regulated in Section 288 (5) of the German Civil Code, appears to be applicable. In labor law, however, Section 12a (1) of the Labor Court Act (ArbGG) also applies. In the event of legal disputes (specifically: first instance judgment proceedings), there is therefore no claim to reimbursement of legal costs. However, since the claim for the lump sum for late payment is not yet a judgment procedure, the question was controversial. Among other things, the regional labor court in Cologne had previously ruled in favor of the flat-rate fee for default costs for employees. Section 12a, Paragraph 1 of the ArbGG is not to be applied analogously to the flat-rate fee for default costs, because there is no unplanned loophole. Such a loophole is always a prerequisite for the analogous application of legal norms.
You can imagine the analogous application of the law as follows: "The motto is: Santa Claus in the sense of the law is also the Easter bunny".
Practical note: The latest court decision issued by the highest authority to date denies entitlement to the € 40 flat-rate late payment fee for employees.
The choice of the interest method usually has little influence on the interest income. The applicable interest rate method is not expressly regulated by law. Case law has not been published on this legal issue. However, it seems appropriate to use the so-called effective interest method. Here, the amount is compounded to the day / day.
current base rate
The current base rate remains unchanged at - 0.88 percent p.a ..
The interest rate is already integrated in the calculation program for the default interest.
Source for the current base rate
The default interest is based on the so-called base rate, which changes every six months. According to Section 247 (2) BGB, the Bundesbank publishes the applicable base rate. The base rates on which this interest rate calculator is based can be found on the Bundesbank's website.
Procedure in the event of default in payment as a creditor
The further expedient procedure depends on the respective circumstances. In principle, it is advisable to contact the debtor and find out the reasons for the default. If there is little resistance and poor liquidity, dunning requests and enforcement orders are promising. The speed at which the claims are titled is often decisive in order to realize the claim against insolvency. If the delay can be explained by temporary payment difficulties, further options can be considered. For example, (economic) pressure can be exerted in a permissible manner (e.g. termination of further business relationships). Depending on the circumstances, the debtor can also be offered an installment payment agreement in the event of payment delays.
Ultimately, the way remains to enforce the claim in court. In order to quickly obtain an enforcement order, it should be checked whether the action can be brought in a document process.
Behavior in the event of late payment as a debtor
The behavior to be recommended depends largely on whether you refuse a payment because the claim is unfounded or the delay is due to insufficient liquidity. If you consider the reminder to be unfounded, there is a risk that you will be sued in court by the person making a claim.
In the event of payment difficulties, it is important to avoid further legal costs (dunning costs, legal fees, court costs) by reaching an agreement with the creditor. Try to arrange either a deferred payment or an installment payment.
Burden of proof in the event of default
The obligee has to prove all requirements of the default. However, the fault of the debtor is excluded from this. The latter must prove that he is not to blame for the delayed performance. The debtor is also responsible for the fault of his vicarious agents (e.g. employees).
Legal regulation: § 288 BGB default interest and other default damage
(1) Interest is payable on a monetary debt during the delay. The default interest rate for the year is five percentage points above the base rate.
(2) In legal transactions in which a consumer is not involved, the interest rate for payment claims is nine percentage points above the base rate.
(3) The obligee can demand higher interest for another legal reason.
(4) The assertion of further damage is not excluded.
(5) In the event of default by the debtor, if the debtor is not a consumer, the creditor of a claim for payment is also entitled to a lump sum payment of 40 euros. This also applies if the payment claim is an advance payment or other payment in installments. The flat rate according to sentence 1 is to be offset against any owed damages, insofar as the damage is justified in the costs of legal prosecution.
(6) An agreement made in advance that excludes the obligee's claim for interest on arrears is ineffective. The same applies to an agreement that limits this claim or excludes or limits the claim of the obligee of a claim for payment to the lump sum in accordance with paragraph 5 or to compensation for the damage caused by the costs of legal prosecution, if it is with regard to the interests of the obligee is grossly unfair. An agreement on the exclusion of the flat rate according to paragraph 5 or the compensation of the damage, which is justified in the costs of legal prosecution, is to be regarded as grossly unfair in case of doubt. Sentences 1 to 3 do not apply if the claim is directed against a consumer.
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