Consumer bankruptcy as a remedy for debt spiral

The institution of consumer bankruptcy was created in order to help a debtor who has ceased being solvent. This assistance relies on forfeiting of all debtor’s liabilities. However, this does not happen automatically, but at the time of announcing the decision on the declaration of bankruptcy. The first step in the proceedings is appointing an office receiver (a legal administrator). Setting the composition of the so-called the bankruptcy estate, i.e. the debtor’s property, which an office receiver will be able to sell with a view to satisfy the creditors to a greater or lesser extent. Then, the court will decide on the repayment plan for the outstanding debts (liabilities). As of today, the repayment plan covers up to 3 years. This plan is a real one very likely to be performed by the debtor while taking his earning potential into account. If the debtor complies reliably with the agreed repayment plan, the court will redeem the debtor’s remaining liabilities.

Who can benefit from the institution of consumer bankruptcy?

Consumer bankruptcy can be declared only by a natural person who is a consumer. Persons running a business, or at least appearing in CEiDG – cannot apply for the declaration of consumer bankruptcy. The former entrepreneur “becomes a consumer” – i.e. may apply for the declaration of consumer bankruptcy when the year has elapsed since the de-registration of the CEiDG activity.

A special circumstance occurs in the case of a former entrepreneur – the court assesses in this proceeding whether the obligation to file for bankruptcy of an entrepreneur occurred within 10 years before the date of filing the application for consumer bankruptcy. Nevertheless, this is only a matter of convention with which one can argue. In this case, it would be enough to submit appropriate explanations or evidence.

The regulations require justification of the application by indicating the circumstances that led to the insolvency. According to them, a description of events or contracts should be included in order to justify the application. When confirmation the justifications provided, appropriate documents (e.g. copies of loan agreements or certificate of illness) should be presented or witnesses should be called. In the case of natural persons not conducting business activity, in order to be able to declare their bankruptcy, the condition is that the insolvency of the debtor would not be caused by intentional acts of the debtor or his gross negligence in this matter.


Bankruptcy Act

Article 49121, paragraph 1 of the bankruptcy law lists obligations that cannot be discontinued as a part of consumer bankruptcy. All other obligations of the consumer may be forfeited, irrespective of whether they were created in connection with previously conducted business activity or whether they constituted so-called consumer debts. The said provision does not mention either overdue tax liabilities or unpaid ZUS (the Social Insurance Institution)contributions, so it should be assumed that the debt cancellation covers both private and public debts (including debts on social security contributions and taxes).

In conclusion, liabilities towards the Social Insurance Institution and the Tax Office, created in the course of previous business activity, may be discontinued as part of consumer bankruptcy.

Once a year – by the end of April – a person who has been declared bankrupt is required to report to the court on the execution of the plan for repayment of creditors for the previous calendar year. The submitted report should be accompanied by a copy of the PIT annual settlement, and show the income earned there, the amounts repaid, as well as purchased assets with a value exceeding twice the minimum wage. After a reliable execution of the creditors’ repayment plan, the bankrupt may submit an application to the court to redeem the outstanding liabilities and to close the bankruptcy proceedings.

The bankrupt after the announcement of consumer bankruptcy cannot include contracts that would result in a debt increase, to the extent that it affects the ability to satisfy existing creditors. The bankrupt can only contain small agreements of everyday life

To sum up:

The cost of carrying out the proceedings regarding consumer bankruptcy is determined individually with the client. It depends on the degree of involvement of the Law Firm in a specific case. This is a special procedure that requires a lot of effort on the part of the attorney. The course of this procedure consists of following stages:

  1. Submission of an application for consumer bankruptcy – a correctly completed application, accompanied by annexes regarding financial problems, provides the basis for a court ruling favourable to us.
  2. The trails – usually one term on which a party to the proceeding is listened to. In the vast majority of cases, the Judge announces the bankruptcy of the person on the day the announcement is made.

III. The actual bankruptcy proceedings are conducted when the Court issues a decision on the announcement of consumer bankruptcy. The following are carried out:

– determination of the composition and value of the bankruptcy estate, i.e. the assets and income of the bankrupt consumer;

– preparation of a list of claims;

– the sale of the assets of the bankrupt and the division of funds thus obtained between the creditors included in the list of claims, insofar as the fallen consumer has some assets;

The last stage is omitted if the bankrupt’s personal situation clearly indicates that  the bankrupt would not be able to make any repayments under the Repayment Plan of the Creditors. In such a case, a decision is made to discontinue the obligations of the bankrupt consumer without setting a Repayment Plan for Creditors.

If the bankruptcy proceedings are terminated, all proceedings against the bankrupt shall be forfeited. It is essential to remind, that our Law Firm has the necessary experience in conducting bankruptcy proceedings.

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