Loan default — the borrower's failure to meet repayment obligations under a credit relationship — is a frequent source of civil litigation. The Georgian Civil Code regulates the key aspects of this relationship through specific rules: the right to demand immediate repayment, the procedure for debiting funds from an account, the application of additional security, compensation for losses caused by early return of credit, and termination of the credit relationship after missed instalments. The outcome of a default dispute often depends on which of these rules the court applies.
The Right to Demand Immediate Repayment
Under Article 627 of the Civil Code, the lender has the right to demand immediate return of the debt if the borrower's financial condition substantially deteriorates, thereby endangering the claim for return of the loan. This right also exists where the deterioration of the borrower's financial condition preceded the conclusion of the contract, but became known to the lender only after the contract was concluded. In litigation, applying this norm requires establishing that the deterioration was substantial and genuinely endangered the recovery of the loan. If these conditions are met, the creditor may claim repayment without waiting for the agreed maturity.
Debiting Funds from an Account
Default disputes often raise the question whether a credit institution may unilaterally debit funds from the borrower's account. Article 861 of the Civil Code resolves this clearly: a credit institution must carry out the debiting of monetary funds from an account only on the basis of the account holder's permission or instruction. Otherwise, it is obliged to reinstate both the damage caused and the wrongly transferred amount into the account holder's assets. An unauthorised debit can therefore be challenged in court, and the institution must additionally compensate the injury suffered.
Additional Security and Compensation for Losses
If in-kind or personal security was agreed when the credit was granted, the creditor may, upon incomplete repayment of the loan, demand the application of additional security, as provided by Article 870 of the Civil Code. At the same time, the creditor is obliged, at the borrower's request, to return any security that exceeds the agreed coverage of the repayment. Early return of credit is treated separately: under Article 872, if the borrower returns the credit before the end of the credit relationship, the creditor may demand corresponding compensation for losses. In calculating this compensation, the value of the expenses saved and the benefit the creditor would have received from an alternative use of the loan currency must be taken into account. Compensation may also be sought where the borrower deliberately prevented the creditor from receiving it.
Termination After Missed Instalments
For credits repaid in instalments, the legal consequence of default follows from Article 873 of the Civil Code. The creditor may terminate the credit relationship if repayment in instalments was agreed and the borrower has missed, consecutively, at least two due dates. The termination enters into force only if payment is still not made after the expiry of an additional two-week period. A missed instalment alone does not yet entitle the creditor to terminate, and a termination in breach of these conditions may be contested by the borrower. In court, the subject of verification becomes the agreed structure of instalment repayment, the sequence of missed due dates and the expiry of the additional period.
Preparing the Dispute and Frequently Asked Questions
In default litigation the evidentiary core consists of the loan agreement, the payment history, the security documentation and the correspondence between the parties. The procedure for filing and hearing a claim is governed by the rules of civil procedure legislation. The questions below are the ones borrowers and lenders most frequently bring to a lawyer.
When may the lender demand immediate repayment?
When the borrower's financial condition substantially deteriorates and this creates a threat to the return of the loan. The right also exists if the deterioration predated the contract but became known to the lender only after its conclusion.
What are the consequences of an unauthorised debit from an account?
A credit institution may debit an account only with the holder's permission or instruction. Otherwise it must reinstate the damage caused and the wrongly transferred amount into the account holder's assets.
How many missed instalments give the right to terminate?
For credit repaid in parts — missing at least two consecutive due dates. Termination takes effect only if payment is not made even after the additional two-week period.
Can the borrower return the credit early?
The borrower may return the credit before the end of the credit relationship, but the creditor may then demand corresponding compensation for losses, which takes into account saved expenses and the benefit of an alternative use of the loan currency.
Must the creditor return excess security?
Yes. At the borrower's request, the creditor is obliged to return any security that exceeds the agreed coverage of the repayment.
How We Help on Legal.ge
The Legal.ge team handles loan default litigation with attention to every detail: we examine the contract terms, the chronology of payments, the lawfulness of the security and the debits, and we assess the realistic legal prospects of the case. Get qualified assistance with preparing the statement of claim, defending against unfounded demands and conducting negotiations on Legal.ge.