In view of the impending change in consumer bankruptcy legislation, I have decided to write a few words on this very topic.
In today's article you will learn, among other things.
- what is consumer bankruptcy,
- Who can file for bankruptcy and in what situations,
- what information to include in the application,
- under what circumstances the court will dismiss the application,
- what it is "repayment plan", and of course
- What about debt forgiveness.
Consumer bankruptcy - what is it?
The possibility to declare consumer bankruptcy came into force in our country relatively late. It was 2009. At that time, in many countries, non-business individuals had long been able to benefit from the advantages of this institution.
Consumer bankruptcy is the discharge of all or part of a non-business individual's debts. That is, the discharge of all or part of such a person's debt.
A prerequisite for declaring consumer bankruptcy under current legislation is:
- involuntary insolvency of the debtor and
- acting in accordance with the law. Both before the bankruptcy petition was filed and during the proceedings. This condition causes the greatest number of problems in practice and often leads to the dismissal of the application. This is particularly the case in situations such as acting to the detriment of creditors, concealing assets or failing to fulfil the obligations indicated by law.
I would add that insolvency is a state in which the debtor is unable to fulfil his or her due monetary obligations. For example, he or she is unable to buy food for the family and repay loans taken out at the same time.
Application for bankruptcy
The cancellation of the debt is decided by the court, to which a duly completed application must be submitted. The application shall be submitted by the debtor or, in certain situations, also by the creditor. The application shall be submitted on a special formwhich should include, inter alia
- the name, place of residence and PESEL number of the debtor,
- places where the debtor's assets are located,
- the circumstances which justify the application and their substantiation,
- an up-to-date and complete list of assets with an estimated valuation of their components,
- a list of creditors with their addresses and the amount of each creditor's claim and the dates of payment.
It is of the utmost importance that the reasons for the application are correct and comprehensive. Accordingly, it must be shown that the negative conditions I mentioned above do not apply. These are the absence of wilful misconduct on the part of the debtor and gross negligence.
The application, together with any attachments giving evidence of the circumstances stated in the application, shall be submitted to district court - commercial court the debtor's place of residence.
When will the court dismiss our application?
Court dismiss the application for bankruptcy, if:
- the debtor took out further loans knowingthat he will not pay them or has acted to the detriment of his creditors, unless he can show in the application that there are grounds for declaring bankruptcy equity or humanity (e.g. serious illness),
- w within the 10 years prior to the application bankruptcy proceedings were conducted against the debtor, or a judgment declaring an act detrimental to the creditors (e.g. conclusion of an agreement with a third party with the aim of impoverishing the creditor) became final during this period,
- the application is filled in incorrectly or is incomplete.
Consequences of the acceptance of the bankruptcy petition by the court
The purpose of insolvency proceedings is, on the one hand consumer debt relief and giving it a fresh start. On the other hand, the fullest possible satisfaction of creditors' claims. Therefore, in insolvency proceedings, all of the debtor's assets are included in what is known as the 'bankruptcy estate'. of the bankruptcy estate. This happens after the court has issued the bankruptcy order. Everything that goes into this estate will be monetised and used to satisfy the claims of creditors who have filed their claims. The debtor from then on does not have the right to dispose of things freely included in the mass (it cannot, for example, sell the flat itself).
If the bankruptcy estate includes a dwelling or a single-family house in which the bankrupt resides, and it is necessary to satisfy the housing needs of the bankrupt and his dependants, an amount shall be allocated to the bankrupt from the sum obtained from its sale, corresponding to the following the average rent of a dwelling in the same or a neighbouring locality for a period of twelve to twenty-four months.
The bankruptcy estate shall include, in addition to the property of the debtor, the debtor's salary. Except for the part that is not subject to seizure (the amount of the minimum wage, not more than 50% salary).
Repayment plan
The court also establishes a so-called repayment plan. It applies to liabilities:
- claims made by creditors before the declaration of bankruptcy and not satisfied from the assets of the bankrupt, and
- debts incurred subsequently.
In determining the creditors' repayment plan, the court takes into account not only the bankrupt's actual earnings, but also his earning capacity after deducting the portion of income necessary to support the bankrupt and his family. The court then determines how much of the income will be used to satisfy the claims. It also indicates over what period (not more than 36 months and in some cases 54 months) the bankrupt will be obliged to make repayments. The court shall also determine what part of the bankrupt's liabilities arising prior to the date of the bankruptcy declaration will be waived upon implementation of the repayment plan.
After the bankrupt has fulfilled the obligations set out in the creditors' repayment plan, the court shall issue a an order stating that the repayment plan has been implemented and that the bankrupt's debts incurred before the date of the declaration of bankruptcy and not satisfied as a result of the implementation of the creditors' repayment plan are cancelled.
That is, once you have successfully passed the probationary period, i.e. demonstrated your honesty of payment by regularly paying your creditors in the manner set out in the repayment plan, The court will write off the rest of the debts.
Obligations such as:
- maintenance,
- liabilities arising from induced sickness compensation annuities,
- incapacity, disability or death,
- a fine imposed by a court, or
- obligation to make good the damage and to compensate for the harm suffered.
Research conducted by the Ministry of Justice shows that roughly half of consumer bankruptcy applications are rejected at the very first stage of the proceedings. This statistic certainly does not fill with optimism. Indeed, the basic condition for declaring consumer bankruptcy, in contrast to entrepreneurs, is not only insolvency, but also absence of intentional fault or gross negligence by the debtoras I mentioned above.
In short, if the court comes to the conclusion that the debtor has taken out further loans in the knowledge that he will not repay them or in anticipation of this possibility, there is, in principle, no question of declaring bankruptcy.
Planned regulatory changes
The high percentage of rejected cases in court was the reason why the Ministry of Justice submitted a draft amendment to the Act - Bankruptcy Law in March. It is assumed that the amendment will enter into force later this year. It aims to liberalise the provisions on consumer bankruptcy. The changes oscillate around simplifying the procedure for debtors non-entrepreneurs. There will be abolishing at the preliminary stage of the proceedings the verification of the reasons why the debtor got into financial difficulties. The debtor's culpability is to be taken into account only when establishing a plan for repayment of creditors.
Despite such a high number of dismissals, it is worth trying and taking advantage of the opportunities to get out of debt that the law gives us. Living under stress, constantly running from the debt collector, piling up piles of reminders and summonses certainly does not make life any easier. Consumer bankruptcy offers the possibility to concentrate all debts in a single proceeding. As soon as bankruptcy is declared, court and enforcement proceedings are suspended. Once the claim enters the bankruptcy estate, these proceedings are discontinued. Now you just have to stick to the repayment plan so that after 3 years and the cancellation of the rest of your debts, you can enjoy debt-free freedom. For this moment, it is worth taking this action.
