Bad Debt Trading and Collateral Enforcement: New Framework

Bad Debt Trading and Collateral Enforcement: The Post-Resolution 42 Framework

Vietnam's bad-debt market now operates under a new framework: Resolution 42/2017/QH14 on pilot bad-debt resolution expired at end-2023, and the 2024 Law on Credit Institutions has codified part of its mechanisms. Knowing "what survived and what didn't" is prerequisite for every deal.

Contents

• 1. Resolution 42's expiry: what changed?
• 2. Current legal framework
• 3. Who may trade bad debts?
• 4. Collateral enforcement: methods
• 5. Collateral seizure after Resolution 42
• 6. Due diligence checklist for buying bad debt
• 7. Frequently asked questions
• 8. When to work with a lawyer
• References

1. Resolution 42's expiry: what changed?

Resolution 42/2017/QH14 piloted special bad-debt mechanisms (collateral seizure, payment priority, summary procedures…) and expired at end-2023. Consequences:

• Resolution 42 can no longer be cited as basis for special measures;
• Some mechanisms were codified into the 2024 Law on Credit Institutions — but not every pilot mechanism survived;
• All current debt transactions and enforcement plans must follow the 2024 Law and current guidance.

2. Current legal framework

• Law on Credit Institutions 2024 (32/2024/QH15), effective 01/07/2024: bad debt and collateral rules for credit institutions;
• Civil Code 2015: security measures (pledge, mortgage, guarantee);
• SBV guidance on debt trading and VAMC operations.

3. Who may trade bad debts?

Market participants: credit institutions, foreign bank branches, VAMC (Vietnam Asset Management Company), DATC and others as prescribed. Debt trading must comply with: valuation of debts and collateral, information disclosure, procedures and reporting.

4. Collateral enforcement: methods

Three main methods under the Civil Code and specialized law:

1. As agreed in the security contract (sale, appropriation…);
2. Auction of the secured asset;
3. Appropriation by the secured party in lieu of performance.

Failing agreement on method, disputes go to court.

5. Collateral seizure after Resolution 42

The most confusing point. Under Resolution 42, credit institutions piloted collateral seizure under strict conditions (undisputed assets, contractual seizure clauses…). After expiry:

• Seizure must strictly follow the 2024 Law on Credit Institutions and the security contract;
• Not every case qualifies — disputed or seized assets are excluded;
• Unlawful seizure may constitute extortion or compensable damage.

6. Due diligence checklist for buying bad debt

Before paying for a bad debt, verify:

• [ ] Legal status of the debt (credit files, contracts, debt instruments);
• [ ] Real value and legality of collateral (independent valuation; check mortgages, disputes, seizures);
• [ ] Recovery prospects (borrower's finances, other assets);
• [ ] Ongoing litigation and enforcement proceedings;
• [ ] SBV debt-trading compliance (participants, procedures, reporting).

7. Frequently asked questions

Q: Is Resolution 42/2017/QH14 still in force?

A: No. Resolution 42 on pilot bad-debt resolution expired at end-2023. Some of its mechanisms were codified into the 2024 Law on Credit Institutions — but not every pilot mechanism survived.

Q: Who may trade bad debts in Vietnam?

A: Credit institutions, foreign bank branches, VAMC, DATC and other organizations and individuals as prescribed; debt trading must comply with valuation, disclosure and reporting rules.

Q: What are the collateral enforcement methods?

A: Three main methods: (1) as agreed in the security contract; (2) auction of the asset; (3) the secured party takes the asset in lieu of performance. Failing agreement, sue in court.

Q: May credit institutions seize collateral?

A: Seizure was piloted under Resolution 42 under strict conditions; after its expiry, seizure must strictly follow the 2024 Law on Credit Institutions and the security contract — not every case qualifies.

Q: What due diligence is needed when buying bad debt?

A: Legal status of the debt, value and legality of collateral, recovery prospects, related disputes/seizures, and compliance with SBV debt-trading rules.

Q: May foreign investors buy Vietnamese bad debts?

A: Not prohibited in principle, but transactions must go through prescribed participants and procedures and meet foreign exchange and investment conditions; structure carefully with counsel.

8. When to work with a lawyer

Work with a lawyer when: buying or selling bad debts; enforcing or seizing collateral; structuring foreign-element debt deals; or disputes arising from collateral enforcement. FLAT Law Firm advises on debt trading and collateral enforcement — contact hotline 0988424851.

References

• Law on Credit Institutions 2024 (32/2024/QH15).
• Resolution 42/2017/QH14 — expired (cited to prevent misapplication).
• Civil Code 2015 (91/2015/QH13).
• Content cross-checked at time of writing (28/9/2026).

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