Consumer bankruptcy - 10 things you should know

Contrary to popular belief, consumer bankruptcy is not something to be feared. It is the only way out of the debt spiral for a debtor who is unable to repay his/her loans, harassed by debt enforcement and hounded by debt collectors. However, before applying to the court for bankruptcy, it is worth knowing how to prepare for it in order to avoid mistakes and unpleasant legal consequences.

1. Not just for the rich

Po nowelizacji ustawy o prawie upadłościowym i naprawczym, która obowiązuje od 1 stycznia 2015 roku, każdego stać na zgłoszenie upadłości. Koszt złożenia wniosku do sądu rejowego (wydział gospodarczy) to zaledwie 30 zł, wynagrodzenie syndyka jest znacznie niższe niż w przypadku firm, a nieporównywalnie tańsze niż opłacanie komornika. Syndyk nie może zarobić mniej niż jedną czwartą przeciętnego miesięcznego wynagrodzenia w sektorze przedsiębiorstw oraz więcej niż jego dwukrotność. W wyjątkowych sytuacjach, kiedy postępowanie jest skomplikowane lub syndyk ma do czynienia z wieloma wierzycielami, sąd może podnieść jego uposażenie do czterokrotności przeciętnego miesięcznego wynagrodzenia.

If you do not have the money to pay the costs of the insolvency proceedings, the judge may decide that the treasury will cover them initially and you will repay these funds during the repayment plan.

2. only for insolvent

In order for the court to decide on consumer bankruptcy, the debtor should be insolvent and the reasons for this must be beyond his or her control and be due to fortuitous situations, such as a serious illness or an accident at work. The court will not agree to declare bankruptcy if the consumer took out loans knowing that he or she would not repay them, or led to a financial disaster due to gross negligence. Soon, these restrictive provisions are to be relaxed too, and the government is working on another amendment to the law.

We can speak of insolvency when the debtor is unable to pay his financial obligations and the delay in payment exceeds three months.

3. meticulously complete the application form

The basis for success is the preparation of the necessary documents and the proper justification of the application. This should include your current assets, cash holdings, debts owed to banks and others and a list of creditors - including those whose receivables you are disputing. Finally, you need to substantiate your application well and include evidence of the circumstances that led to the insolvency, such as a certificate of serious illness or an accident report. Witnesses can also be called.

The receiver who will administer the estate is appointed by the court. But, as lawyers advise, it is advisable to contact a specialist in insolvency law before making an application.

4. it is worth being honest

Consumer bankruptcy is the most beneficial form of getting out of debt for the debtor. It allows him or her to repay his or her debts without stress and also has the chance to write off debts that have not been repaid after a repayment plan has been executed.

However, there is one condition: the consumer must be honest. The court will not agree to bankruptcy if the debts have arisen due to gross negligence or intentional acts of the debtor. If, during the bankruptcy proceedings, the debtor has hidden assets or taken actions to the detriment of creditors, e.g. dismissed himself from his job, he cannot count on the court's leniency. In such situations, the bankruptcy proceedings will be discontinued and the consumer cannot seek bankruptcy for the next 10 years.

5. you won't end up on the pavement

Consumer bankruptcy is not about letting the debtor go down in his socks, but about putting him out of debt so that he can function normally in society. If your bankruptcy estate includes a flat or house, you will not be made homeless overnight. The court will allocate you an amount equivalent to the average rent of a flat in the same or a neighbouring locality for a period of one to two years. What this amount will be is decided by the judge, taking into account your earnings and how many dependants you have.

If you can show that you will pay your debts without having to sell your house or flat, the court can stop the liquidation of your assets and ask your creditors if they agree to the arrangement.

6. lose your car? Not always

With the declaration of bankruptcy, the consumer cannot dispose of his assets, sell his house or car. It is managed by a trustee, who will take an inventory of it and put it up for sale. This does not apply to necessities such as clothes, bedding, food supplies for a month, tools for work. In exceptional situations, when the car is used for a profession (e.g. the debtor is a taxi driver or is in the business of delivering pizzas), the court may exclude it from the bankruptcy estate.

7. You will not be left destitute

The bankruptcy estate includes your salary, but part of it will not be subject to attachment. The court will leave you with funds to support your family. What part of your salary is protected is determined by employment law. Alimony can be deducted up to three-fifths of your salary and other debts up to half of it. However, the debtor must be left with the amount of the minimum wage, i.e. PLN 1,459 net in 2017 (PLN 2,000 gross). If this is how much you earn, this amount will be free from seizure.

8. don't have a flat? No problem

Contrary to what some lawyers claim, owning a flat, house or other valuable assets is not a prerequisite for the court to agree to a consumer bankruptcy. If you have no assets, the judge will only set a repayment plan that is in line with your earning capacity. When you make them regularly - after a period set by the court - the rest of your debts will be written off.

9. they can forgive you debts

Once the consumer's assets have been liquidated, the court establishes a plan for the repayment of debts that have not been satisfied. It determines how much of the consumer's income will go towards repaying them and how long this will take. The repayment plan may not cover a period longer than 36 months (sometimes 54 months). The court also determines how much of the financial obligations will be written off under the repayment execution. During this period, creditors may not enforce those debts that arose before the bankruptcy declaration. Once the repayment plan has been executed, the court waives the remaining debts and puts the consumer into debt.

In exceptional situations, if the debtor is unable to pay his creditors, the court may write off his obligations without setting up a repayment plan. Neither alimony nor obligations arising from pensions for compensation for causing illness, incapacity, disability or death shall be written off.

10. Spouses - though together, yet apart

One of the few drawbacks of the new Insolvency and Bankruptcy Law is that spouses cannot carry it out jointly. Although they often take out loans together, they have to file two separate applications. It is true that they can request the court to merge the hearing of both cases before declaring consumer bankruptcy, but the subsequent proceedings will already take place separately. This means that two bankruptcy estates will be created and each spouse will have a different trustee.

Data on consumer insolvencies in 2016 and 2017 are from the Central Economic Information Centre and are based on the Monitor Sądowy i Gospodarczy.

The material appeared on forsal.pl:

4 May 2017:
" Bankruptcy with a human face. The 10 most important things you should know about consumer bankruptcy