With the effect of 1 September 2015, Hungary introduces legal provisions on personal insolvency. Such procedure is reserved for private individuals (may they be entrepreneurs or consumers), who have debts between HUF 2 mln (approx. EUR 6,500) and HUF 60 mln (approx.EUR 195,000).
The procedure has two fundamental stages: the out-of-court settlement, which is an obligatory stage, and in case of failure thereof, court proceedings. The main role is vested in the main creditor, i.e. a financial institution, which has a mortgage over the debtor’s real property or has concluded a financial lease in connection with such property. The main creditor has strong influence in the out-of-court settlement, e.g. regarding the actual layout of monthly instalments payable by the debtor. Without its consent, a debt settlement cannot come into existence, in which case the Family Insolvency Service as an administrative body, which exercises supervisory and coordination powers in the proceedings, shall file a petition to open the court proceedings.
The leading role in this stage is transferred to the Family Administrator, who as a government official supervises the debtor’s conduct. He is also in charge of the preparation of the draft of the settlement agreement, which should be afterwards adopted by the creditors’ simple majority vote (the main creditor, however, has a veto right) and approved by the court in the end. In case of a successful settlement procedure, the debtor is granted debt relief, should he have settled the minimum quotas determined by the settlement agreement during the 5 years term of the settlement procedure.
Creditors should – by a regular review of the official publications in the respective public registers on the internet – carefully monitor whether a personal insolvency procedure is opened with regard to any of their private individual debtors, since missing the respective deadline for announcement of claims can lead to full forfeiture of rights.