Debt relief (so-called personal bankruptcy) is a way of solving bankruptcy that increasingly reflects social aspects over economic aspects. It is intended to enable the debtor to “relaunch” and motivate him to be actively involved in the amortization of his debt, at least up to an estimated 30% in the case of unsecured creditors. Reinsured satisfaction is expected for reinsured creditors.
Debt relief is primarily a solution for those debtors who have not gone into bankruptcy as a result of their business activities, but ordinary activities – especially household operations. However, entrepreneurship is not entirely an obstacle, because the insolvency law does not allow debt relief only for legal entities entrepreneurs. Natural persons can therefore indulge themselves, whether they are entrepreneurs or not. Debtors (both legal and natural persons) should not have any business debts, even though there are still exceptions. The Insolvency Act provides that business debts are not an obstacle to resolving the debtor’s bankruptcy or imminent bankruptcy if
- the creditor whose claim is concerned agrees, or
- it is a receivable of a secured creditor or
- it is a creditor’s claim that has remained unsatisfied after the bankruptcy of the debtor’s assets has been canceled to comply with the scheduling resolution or on the basis of the insolvency court’s finding that the debtor’s assets are completely insufficient to satisfy the creditors.
The application for debt relief shall always be filed by the debtor alone together with the insolvency petition.
Therefore, no one else can file an application for debt relief on behalf of the debtor. In the event that the creditor would prevent the debtor from filing an insolvency petition, the debtor has a 30-day forfeiture from responding – filing an application for debt relief and must be informed about this possibility by the court.
The spouses may submit a joint application for debt relief
provided that each of them is individually a person authorized to file a debt relief permit. The joint application must contain an explicit statement by both spouses that they agree that all their property should be treated as property in the joint property of the spouses for the purposes of approving the discharge of assets by the liquidation of assets.
The insolvency court shall reject the application for debt relief if:
- there is a pursuit of a dishonest intention; or
- the value of the indemnity benefits that unsecured creditors would receive would be less than 30% of their claims, unless those creditors agree to a lower indemnity, or
- the results of the proceedings so far demonstrate the reckless or negligent approach of the debtor to the performance of the insolvency proceedings.
In the event that the insolvency court rejects the petition for debt relief, it shall simultaneously decide on the method of resolving the debtor’s bankruptcy by liquidation. If, on the other hand, debt relief permits, the way in which it will be carried out has yet to be determined.
Approval of debt relief
The Insolvency Act regulates two possible ways of debt relief, namely by monetization of assets or fulfillment of payment schedule. The decision on the method of debt relief is left to unsecured creditors who vote either at their meeting or outside. The result of the vote is the basis for further decisions of the insolvency court, which still has to approve the debt relief.
The debt relief order binds all concerned – both the debtor and the creditors, including creditors who disagreed or did not vote for debt relief. The resolution contains important information for the next stages of the proceedings – for example, the method of debt relief (by liquidating the estate or completing the repayment schedule), determining the assets outside the estate, the repayment schedule or the insolvency administrator. The insolvency court shall approve the debt relief if, during the insolvency proceedings, facts which would otherwise justify refusal or rejection of the application for authorization, have not come to light. Otherwise, it will not approve the debt relief and at the same time decide on how to resolve the debtor’s bankruptcy by liquidation.
Once the debt relief has been approved, the decision will be published in the insolvency register, which makes it effective.
Monetization of assets
Monetization of assets involves the debtor’s current assets. It does not apply to assets acquired by the debtor in the future and even to assets acquired by the debtor in the course of insolvency proceedings after the effects of the discharge of debt relief have occurred. Monetization proceeds similarly in accordance with the provisions on the liquidation of assets in bankruptcy.
Fulfillment of payment schedule
This method of debt relief affects the debtor’s assets primarily in the future – the receivables of secured creditors are satisfied from the proceeds of the liquidation of the collateral and at the same time the debtor fulfills the receivables of unsecured creditors according to the given ratio for 5 years. The debtor is obliged to repay the unsecured creditors a monthly amount (for a period of 5 years) of its income to the same extent that priority claims can be satisfied in the execution of the decision or in the execution. You can calculate the probable amount of installments here: http://insolvencni-zakon.justice.cz/…splat.html.
For the duration of the effects of debt relief approval by meeting the repayment schedule, the debtor is obliged
- to engage in an adequate gainful activity and, if unemployed, seek income; he cannot refuse the feasible opportunity to obtain income,
- to give to the insolvency administrator values obtained by inheritance, gift and ineffective legal act, as well as assets which the debtor did not include in the list of assets, although he had this obligation or his extra income in order to use them for extraordinary instalments beyond the payment schedule
- to notify the insolvency court, the insolvency trustee and the creditors’ committee without undue delay of any change in his / her residence or registered office and employment;
- to submit an overview of his income for the past 6 calendar months to the Insolvency Court, the Insolvency Trustee and the Creditor Committee by 15 March and 15 September of the calendar year, unless the Insolvency Court decides otherwise in the resolution on discharge of debt relief;
- not to conceal any of his income and, submit their tax returns for the duration of the effects of the discharge of debt relief at the request of the insolvency court, the insolvency administrator or the creditors’ committee, ,
- not to grant any of the creditors any special advantages;
- not to enter into new obligations which he would not be able to meet at maturity.
The debtor cannot refuse a gift or an inheritance without the consent of the insolvency administrator, otherwise it would be an invalid legal act. In addition to the insolvency trustee, the debtor is also supervised by the insolvency court and creditors (creditors’ committee). The debtor is therefore obliged to provide them with an overview of his income for the past six months (see above) every six months. After the debt relief approval, the debtor cannot be in default of more than 30 days due to the payment of his pecuniary obligation due to his fault, otherwise the insolvency court cancels the approved debt relief and the bankruptcy will be settled by liquidation.
Debt discharge and debtor relief
The insolvency court will take note of the discharge of the debt relief by a decision against which an appeal is not admissible. The insolvency proceedings are terminated by the legal force of this decision. Thereafter, the debtor is entitled to apply to the court for an exemption from payment of debt relief debts to the extent that they have not yet been satisfied. The exemption shall also apply to creditors whose claims have not been taken into consideration in the insolvency proceedings and to creditors who have not filed their claims in the insolvency proceedings, although they should have done so. It also applies to guarantors and other persons who have a right of recourse against the debtor in respect of such claims. In general, all debts from the past are cleared to the debtor until the discharge of debt relief. At the same time, the insolvency court may withdraw the exemption. It shall do so at the request of one of the creditors concerned if it becomes apparent that the discharge of debt relief or the granting of the exemption was due to the fraudulent conduct of the debtor or that the debtor has granted special advantages to certain creditors. The application must be made within 3 years from the granting of the exemption. The exemption shall also cease if the debtor has been convicted of an intentional criminal offense within three years of his admission, which substantially influenced the approval or discharge of the debt relief or the granting of the exemption, or which otherwise harmed the creditor.
The above text is drawn from the official website on insolvency law http://insolvencni-zakon.justice.cz/