According to current data, the number of people forced to declare personal bankruptcy at a high rate is increasing. In May alone, 1524 people had to declare personal bankruptcy (court debt relief under the Insolvency Act 182/2006 Coll.). This is an increase of almost 10% compared to April 2012. And year-on-year (compared to 2011) it is an increase of even 65%. This clearly shows that more and more people are having trouble paying their liabilities.
What is personal bankruptcy and how it works
The aforementioned insolvency law is primarily concerned with solving insolvency in companies or entrepreneurs. However, a part of the Insolvency Act also deals with the debt relief of a natural person (specifically, paragraphs 389 to 418 – for more details see the Debt Relief Act).
In practice, personal bankruptcy works in such a way that a natural person (ie an ordinary citizen who is not an entrepreneur or self-employed person) can file a debt relief petition in the case of having at least two different debts that he is unable to repay. By law, a petition is filed when there are some outstanding commitments.
In personal bankruptcy, there are two ways to resolve your debts. Either this is a debt relief in which the court orders the sale of your property. This may be the case, for example, where you cannot manage to pay off your mortgage. The sale of an apartment or house will raise funds which the court will use to pay the debts.
The second option is personal bankruptcy with gradual repayment according to the repayment schedule. In such a case, the debtor will remain only an unforgettable minimum for a period of five years (similar to the execution of a salary order).
Allow debt relief
In order for the court to allow debt relief (personal bankruptcy), the debtor must be able to pay at least 30% of his debts during this period (5 years). It doesn’t mean you only pay the 30% and you have a room. You must repay your debts all the time (5 years). The repayment ends either after the expiry of the period and / or when all obligations have been paid.
In addition, in personal bankruptcy, you must use all your income (including extraordinary income such as inheritance, donations or bonuses and job bonuses) to pay off your debts.
Personal bankruptcy has its pros and cons. It is without a doubt a very drastic solution. But if somebody gets into such a bad situation that they are unable to pay their debts, it may be a way out. In many cases, it may not be necessary to sell your house or apartment during debt relief. So many people with mortgages can go into debt relief while saving their own housing.