After a comprehensive reform of Austrian business insolvency law, a reform of personal insolvency law is now contemplated.

According to existing legislation, individuals who are not entrepreneurs can submit an application for bankruptcy within the scope of bankruptcy proceedings before a district court. This allows individuals to free themselves of their debts by way of a payment plan or a so-called 'skimming-off procedure', provided that their assets have already been sold.

Under a payment plan, a debtor offers his or her creditors a proportional share, which is payable as partial payment or in instalments. A 'minimum proportional share' is not defined by law. However, the proportional share offered to the creditors must at least be consistent with the debtor's income situation for the next five years. A payment plan offered by the debtor can be accepted only by majority consent of the creditors.

If a debtor is unable to obtain a majority approval of the payment plan, it is possible to free himself or herself of the debts through a skimming-off procedure. In this context, the debtor assigns his or her entire income up to the subsistence level to an escrow agent for seven years. The escrow agent uses those payments to satisfy the debtor's creditors. If at least 10% of the debts can be settled after seven years, the debtor will be released from his or her remaining debts. If the 10% requirement cannot be achieved, the debtor may apply to extend the skimming-off procedure for another three years to achieve the 10% minimum requirement after 10 years. In addition, the debtor may apply to release his or her remaining debts for reasons of equity. However, the courts handle such equity-based decisions very restrictively.

In practice, debtors are often unable to achieve the 10% share through a skimming-off procedure. In this case, they will not be released from their remaining debts and their situation will remain unchanged after the bankruptcy proceedings have been set aside. The reform of the personal insolvency law should change this. Discussions have included proposals to extend the equity grounds on which a release from remaining debts is granted, even if the 10% minimum share has not been achieved. In addition, there are proposals to allow so-called 'eternal bankruptcy' if a debtor earns income on a continuous basis. In this case, the debtor would assign to the creditors his or her entire income up to the subsistence level to satisfy the creditors' proportional shares. Although not released from his or her debts, the debtor would not be continuously facing new execution proceedings and the debts would not be increased by interest.

It is not yet possible to assess whether and to what extent the proposed reform will be implemented. An initial draft is intended to be sent for review later in 2011.

For further information on this topic please contact Alexander Isola at Graf & Pitkowitz Rechtsanwälte GmbH by telephone (+43 316 833 777), fax (+43 316 833 777 33) or email ([email protected]). The Graf & Pitkowitz Rechtsanwälte GmbH website can be accessed at