Reading news from the country or from the world, we can often come across information about company bankruptcies. In the case of this type of entities, it does not arouse greater astonishment – the bankruptcy of unprofitable companies is natural (and some consider that even exceptionally beneficial for the economy as a whole) a phenomenon. Few people know, however, that bankruptcy is a term reserved not only for companies, but may also apply to individuals. We then deal with so-called consumer bankruptcy.
What is consumer bankruptcy?
The very definition of the term speaks of a reduction or a total remission of the obligations of a natural person in the case of a non-default insolvency. The law was introduced to Polish law on March 31, 2009, however, in the current version it was criticized by both parties – both creditors and debtors. The main allegations were the lack of precision or clearly defined procedures, as well as the inconsistency with the European Union law. It is worth noting, however, that the years of disputes, long-lasting and painstaking processes have allowed us to work out much clearer and unambiguous regulations, which we can now effectively use (after the amendment of December 2014).
Who can benefit from the provisions regarding consumer bankruptcy? As the name suggests – above all, natural persons not conducting business. However, it turns out that the group of beneficiaries of the mentioned legal acts may be a bit wider, as it may also be owned by persons running farms, provided that they do not run another enterprise next to the farm. In addition, shareholders of joint-stock companies, or shareholders in limited liability companies, but also in the case where they do not run a business.
What conditions must be met?
One of the key elements is to prove that the debt was not due to the fault of the debtor, and because of external and unpredictable circumstances. The most common causes can be a long-term illness, an accident or a loss of jobless. It is worth paying attention to the last possibility – disciplinary dismissal, resignation (termination of the contract by the employee) and termination of the employment relationship by agreement between the parties will certainly disqualify the application for bankruptcy. It is worth mentioning that the above condition (or more precisely its non-fulfillment) is the most common reason for refusing to initiate the consumer bankruptcy procedure. Therefore, always make sure that we meet all formal requirements!
What does the procedure look like?
The basic condition is to prepare an application for bankruptcy. Such an application should include all the contact and contact details of the debtor, as well as:
- list of assets owned, along with the valuation of its individual components
- a list of all creditors, together with the amount of individual liabilities and repayment dates
- list of people who have property obligations to the debtor
- a list of enforcement and enforcement titles issued against the debtor and a list of proceedings pending against him
Of course, the application should also be accompanied by a statement that the data provided in the application is true. After submitting the application, the court will check it formally, and then (after its positive assessment) will proceed to its consideration. The first stage is the liquidation of the debtor’s property in order to satisfy the creditors – usually it simply means the auction of the debtor’s assets by a designated trustee.
Other ways to get out of debt
It is worth noting that in the event that we decide on a “formal” procedure for determining consumer bankruptcy, the court may order the use of all debtor’s assets to satisfy creditors’ claims. This usually means placing real estate, car or other valuable items for auction. So if we have such assets, it is worth considering, for example, a loan, for example, for the collateral of a car – this may be a way to solve a temporary financial problem. The more so because in the case of the auction conducted by the receiver, the starting price is usually set quite low to ensure that they are interested in buying. In this situation, selling a car can bring profits well below the market price – this is an unattractive solution. The main benefit of the loan is a relatively large amount, and most importantly – we can still use the car.
In the event that the auctions do not allow the repayment of all amounts due, the court orders the repayment plan to be executed. It is a plan that sets a repayment schedule for creditors. It is worth noting, however, that the court determines it not on the basis of the amount of debt, but on the basis of the current possibilities of repayment by the insurer. It is therefore calculated and prepared on the basis of, for example, the income currently achieved by the debtor. The plan is set for no longer than five years (with the possibility of extending by two years). It is worth noting that during this time the person who submitted the application can not, among others, make purchases in installments or purchases with deferred payment. In addition, it is obliged to report on the implementation of the repayment plan. Although these inconveniences are inconvenient, it is worth noting that after a reliable repayment plan, the court can redeem some or all of the debtor’s other liabilities!
What are the benefits?
At this point, it is worth summarizing the benefits that may arise from the announcement of consumer bankruptcy
- Chance for full debt – the most beneficial, but at the same time the most difficult option to obtain;
- Repayment of only part of the debt, divided into installments – in this case, the debtor can count on remission of part of the liabilities, while the rest is spread over the installments in the plan enabling their real repayment;
- Suspension of enforcement, court or recovery proceedings – declaration of bankruptcy suspends proceedings, and the court’s decision may lead to its redemption;
- Mental relaxation – one of the most important elements! A debtor who is not afraid of next visits of a debt collector, bailiff or creditors’ telephone calls may be much more effective in carrying out activities aimed at extinguishing debts.
As you can see, the formal and material requirements imposed on the debtor are quite complicated. This is also indicated by the high percentage of applications rejected due to formal reasons. There is no doubt, however, that this is a method that gives you the chance to effectively get out of debt! It is also worth considering an attempt to declare consumer bankruptcy in another country of the European Union – as a resident of a country in the Community, we have the right to take advantage of the possibility of declaring bankruptcy in any EU country, according to the regulations in force!