New consumer bankruptcy risky for debtors


Seemingly favorable changes in the act regulating consumer bankruptcy may prove dangerous for some debtors. Declaration of bankruptcy will not automatically mean that the bankrupt will be able to count on debt relief and start a new life with a “blank card”.

Consumer bankruptcy 

Consumer bankruptcy 

The number of announcements regarding consumer bankruptcy has been clearly increasing since the beginning of 2015. All thanks to the liberalization of regulations that have abolished the previously strict requirements for a potential bankrupt. Today, you can file for bankruptcy, if only we did not insolvent intentionally or through gross negligence.

The court, when it finds that the debtor meets the conditions for qualifying for bankruptcy, can now decide to write off the debts without the implementation of the repayment plan (i.e. immediately set off the bankrupt) or after a few years of paying off the creditors to forgive the remaining debt.

In 2019, 4,500 had already benefited from the opportunities created by the Bankruptcy Law. people. For comparison, in the first seven months of 2018, 3.8 thousand were recorded. bankruptcy (which means that there are 18% more cases). In July, the Central Economic Information Center recorded 679 announcements in the “Monitor Sagudola”. This is the fourth result in the history of “liberal” consumer bankruptcy calculated since 2015.

Soon, potential changes are going to happen. After the adoption of the new law by the SDWet, the Senate is now working on the government’s draft amendment to the Bankruptcy Law. The revolution in consumer bankruptcy was announced as another pro-consumer step. It will be possible to declare bankruptcy regardless of whether and to what extent the debtor has led himself to insolvency. Therefore, one of the obstacles blocking access to this procedure of some of the debtors will disappear.

Bankruptcy for everyone. Debt relief not necessarily

Bankruptcy for everyone. Debt relief not necessarily

Experts point out, however, that the fact of consumer bankruptcy will no longer mean debt relief. The court will not check before the bankruptcy that the consumer has contributed to solvency, but the problem may arise at a later stage of the procedure.

One of the draft articles indicates that the court will refuse to set up a creditors’ repayment plan (which is followed by the write-off of other debts) or write-offs of the bankrupt without a repayment plan, or conditional write-off without a repayment plan (new path, unknown in current law) ) if:

  • “The bankrupt has led to his insolvency or significantly increased its degree in a deliberate manner, in particular by squandering the constituent parts of the property and intentionally not settling the liabilities due”

The exception will be a situation in which such a step is justified by reasons of equity or humanitarian considerations, e.g. a particularly difficult bankruptcy situation.

“The grounds for refusing a debt relief are formulated very generally. For example, it is deliberate to increase the level of insolvency by taking loans to pay back previous loans or by selling off assets to maintain liquidity, ”comments Mike Larug, a lawyer who specializes in consumer bankruptcy proceedings.

“It should also be taken into account that creditors will want to play an active role in the process of declaring consumer bankruptcy. Their interest will be to prove that the potential bankruptcy has deliberately led to insolvency or a significant increase in its degree, “

In addition, two seemingly synonymous terms appear in the act – intentional and deliberate insolvency. The statement of the first may lead to a refusal to debt relief for the consumer, the second – only to extend the time spent in the “financial purgatory”, i.e. setting a longer than the standard deadline for the implementation of the repayment plan.

The legal act amending the Bankruptcy Law is to enter into force six months after its publication. This means that bankruptcy under the new rules will not apply this year, but will most likely cover consumers in financial trouble reporting to courts in 2020.

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