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Consumer bankruptcy – consequences

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Consumer bankruptcy is one of the ways to settle the debtor's financial obligations and sort out their financial situation. However, it is worth remembering that this procedure is associated with consequences that concern both the debtor and their creditors. Therefore, a person considering using this solution should carefully familiarize themselves with all the effects consumer bankruptcy and be aware of any consequences resulting from such conduct.

Contents:

Debt cancellation

One of the first and most important consequences of declaring personal bankruptcy from the debtor's perspective is the partial or complete cancellation of the financial obligations of the person against whom the consumer bankruptcy proceedings were pending. After declaring bankruptcy, the court will completely cancel the debtor's obligations without establishing a creditor repayment plan if the personal situation of the debtor clearly indicates that he or she is permanently unable to make any repayments under the creditor repayment plan. This happens when the debtor is unable to perform any gainful employment, does not have assets that could be included in the bankruptcy estate, or has health problems that prevent him or her from repaying previously incurred liabilities. It should be noted that the transience of the inability to settle financial liabilities plays an important role here. In a situation where the Court determines that the debtor is able to repay creditors, it will establish a repayment plan that will be adapted to the financial situation and earning capacity of the debtor. However, the debtor must remember that not all liabilities are cancelled; a certain category of liabilities, even in the event of complete debt relief, will not be cancelled. The following are not subject to write-off:

  • maintenance obligations,
  • liabilities arising from annuities in respect of compensation for causing illness, incapacity for work, disability or death,
  • the obligation to pay the fines imposed by the court, as well as to fulfil the obligation to repair the damage and compensate for the harm suffered,
  • obligations to pay compensation or a monetary benefit ordered by the court as a penal measure or a measure related to placing the perpetrator on probation,
  • obligations to redress damage resulting from a crime or petty offence confirmed by a final judgment and obligations which the bankrupt person has intentionally failed to disclose if the creditor did not participate in the proceedings.

This means that after conducting personal bankruptcy proceedings, the bankrupt will have to repay some debts in full.

The Bankrupt's Assets

Another very important consequence of declaring personal bankruptcy for the debtor is the risk of losing their assets. This results from the fact that during bankruptcy proceedings, the aim is to satisfy the debtor's creditors to the greatest extent possible. During bankruptcy proceedings, the bankrupt's assets are liquidated, which is handled by the trustee. It should be remembered, however, that the trustee does not have the legitimacy to seize everyday items such as furniture, clothes or telephones. They are part of the basic items intended for everyday use, which remain free from enforcement and will not be part of the bankruptcy estate.

and) Control of the trustee's actions in the scope of liquidation bankruptcy estate

When issuing a decision to declare personal bankruptcy, the court appoints a trustee who enters the bankruptcy proceedings. Upon his appointment, the trustee takes over the bankrupt's assets, protects them from destruction and liquidates them during the proceedings. The trustee performs actions in his own name, but on the bankrupt's account. The trustee's actions are also subject to control. In the event of a breach of legal provisions that provide the trustee with specific powers, it is possible to file a complaint against his actions. This undoubtedly ensures the security of the bankrupt's interests throughout the proceedings.

b) Bankrupt's authorization and actions performed without authorization by the trustee

Actions taken in the proceedings after the declaration of bankruptcy in order to liquidate the bankrupt's assets are intended to be effective, allowing for obtaining the funds necessary to satisfy creditors. It is worth emphasizing, however, that they are not intended to stigmatize the bankrupt. It may happen that the trustee authorizes the bankrupt to sell a specific asset. Importantly, however, in such a case the trustee determines the conditions and details of such sale, and may also withdraw the authorization granted to the bankrupt.

c) Carrying out legal actions

The declaration of consumer bankruptcy also has significant consequences for the performance of legal acts by the bankrupt. Apart from particularly justified cases, in which the consent of the bankruptcy court is required to perform a legal act, the bankrupt cannot perform legal acts concerning his property, which could impair his ability to execute the creditor repayment plan. Importantly, from the perspective of the bankrupt, this prohibition is not unlimited and it will be the court's responsibility to assess the validity of performing such an act in relation to the interests of the creditors.

One of the obligations that the bankrupt must remember to fulfill is the annual submission of a report on the implementation of the creditor repayment plan for the previous calendar year. The bankrupt submits such a report to the court in which the bankruptcy was declared.

d) Limitation of financial freedom

During the proceedings before the trustee, due to the need to efficiently conduct the bankruptcy proceedings, part of the bankrupt's remuneration is transferred to the bank account of the bankruptcy estate. However, it should be remembered that this is done while maintaining the bankrupt's right to a decent life, because the bankruptcy estate only includes an amount exceeding the amount not subject to seizure, i.e. exceeding the minimum wage, in the case of a full-time employment relationship. In the case of a part-time employment contract, the amount transferred to the bankruptcy estate should be reduced proportionally to the working time.

e) The joint property of spouses and the effectiveness of establishing the separation of property

Another important issue that should be taken into account in consumer bankruptcy is the impact of its announcement on the marital property relations of the bankrupt. According to the applicable regulations, on the day of the announcement of consumer bankruptcy of one of the spouses, the separation of property between the spouses occurs, and if they remained in joint property, the joint property of the spouses is included in the bankruptcy estate. In such a situation, the spouse of the bankrupt takes on the form and rights of one of the creditors of the bankruptcy estate. The trustee notifies him of the announcement of the bankrupt's bankruptcy and instructs him about the possibility of filing a claim. The spouse may claim in bankruptcy proceedings the amount due for the share in the joint property by reporting this claim to the trustee via the IT system supporting court proceedings.

The debtor filing a bankruptcy petition must also be aware that even earlier establishment of the separation of property will not always protect the property of the other spouse. Establishment of the separation of property of a spouse based on a court decision within a year before the date of filing the bankruptcy petition is ineffective in relation to the bankruptcy estate, unless the lawsuit for the establishment of the separation of property was filed at least two years before the date of filing the bankruptcy petition. However, in the case of establishment of the separation of property of a spouse before a notary, such an agreement is effective in relation to the bankruptcy estate only if it was concluded at least two years before the date of filing the bankruptcy petition. This means that if the debtor files a bankruptcy petition before the expiry of the above periods, the entire property of the spouses will be part of the bankruptcy estate and subject to liquidation. It is worth noting here that the bankruptcy estate does not include items used exclusively by the spouse of the bankrupt to conduct business or professional activity, even if they were covered by the marital property community.  

Summary

In conclusion, it should be stated that declaring consumer bankruptcy gives a real chance to return to everyday life without burdensome debts to creditors and to sort out one's financial situation. Without a doubt, this gives the bankrupt a great chance to start a new chapter in their life. However, it is important for the person filing the application to be fully aware of the consequences that are associated with such a procedure, because this is important for the correct going through the entire debt relief process of the bankrupt person.

That is why it is worth it in this situation use the help of specialists in the scope of bankruptcy proceedings, so that the entire debt relief process runs smoothly, without additional complications, which will allow for professional preparation of the application for declaring consumer bankruptcy, as well as conducting the proceedings after its declaration and will streamline contact with creditors, which is extremely important for this process.

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Karolina Kaminska

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