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Consumer bankruptcy: rescue for those in financial trouble

Consumer bankruptcy is a legal instrument that allows individuals to get out of a difficult financial situation. Its purpose is to help debtors who have lost the ability to pay their debts and create the conditions for a fresh start. Find out who can benefit from this procedure, what insolvency is and the benefits of declaring consumer bankruptcy.

Who is eligible for consumer bankruptcy?

Consumer bankruptcy is available to individuals who meet certain conditions:

  • They are not engaged in business – consumer bankruptcy is only for non-business people. If someone has been in business, he or she can apply for consumer bankruptcy, as long as he or she has terminated the business. However, being in business should not be equated with being registered in CEIDG, as a person conducting so-called “unregistered business” is also considered an entrepreneur under the Civil Code.
  • Are insolvent – this means that a person is unable to pay his or her due financial obligations.

What does it mean to be insolvent?

Insolvency is the basic condition for declaring consumer bankruptcy. According to Article 10 of the Act of February 28, 2003. Bankruptcy Law, it means a situation in which a person is unable to pay his/her due obligations. Due obligations are those whose due date has already passed.

In order to simplify the state of insolvency, the aforementioned article introduces a presumption of insolvency, according to which a person is presumed to have lost the ability to perform his/her due financial obligations if the delay in the performance of financial obligations exceeds three months.

An example of insolvency would be a person who, due to a reduction in income or loss of income, has stopped paying his or her mortgage, car payments and current bills. An insolvent debtor also usually has no real prospect of quickly regaining the ability to settle debts.

What are the possible ways to end bankruptcy proceedings?

Bankruptcy proceedings can end in various ways – more or less positive:

  • Quashing of proceedings – the proceedings end without achieving the goal, so the bankrupt returns to the starting point.
  • Repayment plan – this is a schedule according to which the bankrupt repays a portion of his/her liabilities to the extent of his/her financial capacity.
  • Extinction of debts without a repayment plan – the court extincts the bankrupt’s debts without any repayment if the personal situation of the bankrupt clearly indicates that he or she is permanently incapable of making any repayments under the creditors’ repayment plan.
  • Conditional extinction of the bankrupt’s debts – if the bankrupt’s inability to make any repayments under the creditors’ repayment plan resulting from the personal situation of the bankrupt is not permanent, the court shall extinct the bankrupt’s debts without establishing a creditors’ repayment plan, provided that within five years from the date the order on conditional extinction of the bankrupt’s debts without establishing a creditors’ repayment plan becomes final, neither the bankrupt nor any of the creditors files an application for establishing a creditors’ repayment plan.
  • Refusal of debt relief – the court refuses to establish a plan for repayment of creditors, or to extinct the bankrupt’s debts without establishing a plan for repayment of creditors, or to conditionally extinct the bankrupt’s debts without establishing a plan for repayment of creditors, if:
    • the bankrupt led to his insolvency or significantly increased its degree in a deliberate manner, in particular, by squandering the components of his assets and deliberately failing to pay his due obligations,
    • in the period of ten years before the date of filing the bankruptcy application, bankruptcy proceedings were conducted with respect to the bankrupt, in which all or part of his debts were extincted.

What benefits does consumer bankruptcy offer?

Declaring consumer bankruptcy offers many benefits to people in debt who are unable to get out of a difficult financial situation on their own. Here are the most important of them:

  • Debt relief – as a result of the proceedings, the bankrupt’s debts may be extinced in whole or in part;
  • Suspension of bailiff executions – once bankruptcy is declared, all bailiff executions are suspended;
  • Satisfaction of creditors – creditors can be satisfied at least in part if the bankrupt follows the repayment plan;
  • Opportunity for a fresh start – after the bankruptcy proceedings are over, the debtor can start a life free of the debts that have been dragging on, which allows him or her to rebuild the financial situation and stabilize.

Summary

Consumer bankruptcy is a tool that helps individuals recover from a financial crisis when they are unable to pay their debts. There are many benefits to this procedure, such as debt relief, a suspension of bailiff actions and a chance for a fresh start without financial burdens. Although consumer bankruptcy is not an easy step, it can be an invaluable help for individuals who find themselves in a difficult life and financial situation.

Authors

Maciej Marzec

Trainee Attorney at Law, Certified ATS Advisor

Maciej Marzec

Jarosław Rudy

Managing Partner, Attorney at Law, Certified ATS Adviser

Jarosław Rudy