Debt relief is a way of solving bankruptcy for individuals, spouses and certain entities in the Czech Republic. It is a way out of the debt trap. How and where to start?
What is Debt Relief
Debt relief is the process of solving financial problems for people who have fallen into a debt trap. It will help those who can no longer pay their creditors - often by borrowing to pay off other loans until the situation became unsustainable. Debt relief is also a way to return to normal life for debtors who have been in foreclosures for years with no results.
As part of debt relief, the debtor, as a participant in insolvency proceedings, is obliged to seek payment of creditors' claims. The insolvency administrator appointed by the insolvency court supervises the efforts made in this way and, in general, the fulfillment of the debtor's obligations. For the debtor, the outlook is the hope that after a certain period (usually 3-5 years) the court will forgive him the payment of the remaining unpaid debts. It is now in the legislative process amendment, which is supposed to unify this period - i.e. shorten debt relief in all cases to 3 years.
Debt Relief Application
Together with insolvency petition (which the creditor can also file against the debtor) requires that the debtor also file a motion for debt relief. If his creditor files an insolvency petition against him before then, the debtor has the option to file a petition for debt relief within 30 days.
The proposal is not written and submitted by the debtor himself, but through an accredited person - a lawyer, notary, bailiff, insolvency administrator, or charity or consulting organizations. The debtor should not pay the remuneration for the listing in cash, as it will be paid as a priority claim in the event of debt relief being granted. The debtor should cooperate with the drafter of the insolvency proposal, provide documents and supporting materials, in particular data on:
- property;
- the number of creditors and the amount of their claims;
- the debtor's income for the last 12 months, and about the expected income in the next 12 months;
- alimony obligations.
After Submitting the Application
The Insolvency Court - the Regional Court with jurisdiction over the debtor's place of residence - will start insolvency proceedings with a decree published in the insolvency register. After its initiation, it is not possible to carry out executions on most claims; however, priority claims (so-called property-based claims and claims placed on an equal footing with them) can still be enforced with the consent of the insolvency court. Priority claims are, for example, alimony, taxes, insurance premiums for health and social security.
The Court decides on the proposal for debt relief by means of a resolution, which usually establishes the debtor's bankruptcy, an insolvency administrator is appointed and creditors are invited to registration of your claims for the debtor within 2 months.
Debt relief can take place in one of two ways, i) by fulfilling the payment plan with the sale of the debtor's assets, or ii) by sale of the debtor's assets.
Fulfillment of the payment plan with the sale of the debtor's assets
Under this option, the borrower will primarily repay his unsecured creditors from their income over a period of up to 5 years. The amount of installments is influenced by several factors - in addition to the amount of income itself, the number of dependents. Unsecured creditors will be paid in installments proportionately, according to the amount of claims of individual creditors. Together with the payment to the creditors, the debtor also pays an advance for the remuneration and reimbursement of the liquidated expenses of the insolvency administrator, the amount of CZK 1,089 for individuals and CZK 1,634 for spouses.
In addition to regular repayment, the debtor's property is also monetized, but not all of it. As in the case of foreclosures, in insolvency proceedings the debtor does not have to worry about the forced sale of usual household equipment. If the borrower does not live "above his means", he will be left with furniture and common appliances.
In contrast, the protection of the debtor's adequate residence is relatively new. If the real value of the debtor's home does not exceed the comparative value set by the government regulation, then the real estate may not be sold. This does not apply if the property is secured and the secured creditor gives an instruction to sell it.
Sale of the Debtor's Assets
Sale of Assets consists in the sale of all movable and immovable assets of the debtor. Adequate housing protection is not provided under this discharge option; however, the usual household equipment is still protected.
(Ne)splnění oddlužení
The debtor will ideally fulfill the debt relief by paying 100% of the claims of registered creditors, or only of unsecured creditors. Successful completion of debt relief also occurs if the debtor gradually repays at least 60% of unsecured creditors' claims within 3 years.
Debt Relief can also be achieved by the debtor within 5 years he will use all the efforts that could reasonably be required of him. In this way, the cases of borrowers whose situation does not allow them to obtain income to repay their debts (e.g. old-age or disabled pensioners) are also remembered. If the debtor then pays the unsecured creditors at least 30% of their claims within 5 years, then it is considered that the debtor has not breached the obligation to use all efforts.
By resolution, the Court will take note of the fulfillment of debt relief. Subsequently, at the request of the debtor, the court can exempt the debtor from paying the rest of the debts. The claims of creditors who either did not apply for the insolvency proceedings in time or were not fully satisfied are extinguished. However, the claims of secured creditors and other priority claims, such as alimony or claims for damages, do not disappear.
However, the debt relief process may not end positively, as it may also result in the cancellation of the permitted debt relief. This most often happens due to the persistent non-fulfillment of essential obligations by the borrower, i.e. especially because the debtor does not pay regular installments. Reasons for cancellation may also be that the debtor has caused additional debts through culpable behavior, or if it becomes clear that he pursued a dishonest intention in debt relief (e.g. falsified documents or concealed valuable assets). After the cancellation of debt relief, the Court will decide on its conversion to bankruptcy, or the proceedings will be stopped immediately if the debtor's assets are completely insufficient to satisfy the creditors. As part of bankruptcy, all of the debtor's assets are sold, similar to the case of liquidation - with the difference that the debtor no longer has the opportunity to request exemption from paying the remaining debts. Creditors' claims do not expire after the end of the bankruptcy and they can recover them again by way of Enforcement (Execution).
If you are having financial problems and think about Debt Relief, we recommend using the services of accredited entities - you may also contact us.
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