The Existing System
Despite its introduction to the Slovak legal system in 2006, current laws on debt relief within the framework of bankruptcy of natural persons have not been a viable solution.
Basing the legal institute of debt relief on a two-step procedure:
- starting with bankruptcy (i.e. liquidation of (all) the debtor’s assets)
- then followed by a three-year trial period at the end of which the court releases a resolution on the possibility of personal bankruptcy
has in fact hindered debtors from filing.
Even the first step – financing of the liquidation – is beyond the means of most debtors. In the past year, only 391 natural persons filed for debt relief despite the fact that probably hundreds of thousands of individuals are subject to permanent execution and therefore resort to working within the shadow economy in order to protect execution over their income and assets.
In the Pipeline
Taylor Wessing in Bratislava, as a partner to the Ministry of Justice, has been actively involved in expert discussions on the creation of a new personal insolvency regime. The aim of the proposed legislation is not only to motivate the debtors to file for debt relief, but also:
- to safeguard the position of secured creditors such as banks; principles of security will not be affected by debt relief and
- to start forming a healthier loan market for individuals (consumers).
Pursuant to the proposed regulation, debt relief shall become effective at the declaration of bankruptcy and will stay in force even when the bankrupt’s estate is insufficient; at that point, the court will stay the proceedings. This makes debt relief accessible basically to any individual, regardless of the debtor’s possessions (including so called NINJAs).
Payment schedules will be introduced to allow debtors who possess some form of income and assets to opt for partial debt relief. By means of debt rescheduling, the debtors will be able to avoid a fire-sale of their assets, if they are able to settle at least 30% of the unsecured debt.
A debtor may file for debt relief only once within a ten year period, to mitigate the moral hazard risks connected with the relatively accessible debt relief.
If adopted in autumn by parliament, the new rules will enter into force and apply from 1 January 2017.