Czech Government supports amendment to insolvency law to make debt relief more accessible
Borrowers in the Czech Republic may become able to enter debt relief processes irrespective of the amount of debt they owe. The process could take either three, five or seven years, depending on the circumstances of the debt.
Those are the terms of an amendment to the bankruptcy law that was supported on 8 February by the cabinet. Czech Government spokesperson Martin Ayrer informed the public through Twitter that the material had been approved for submission.
The Czech Parliament will now review the proposed legislation. The aim of the Czech Justice Ministry's bill is for more people to be able to extricate themselves from the debt trap.
Debt relief would become more accessible if the law is amended. "The current legal situation does not allow a significant portion of debtors to resolve their debt situation because their debts, over time, reach such a level that they are no longer to pay them off, either in full or through installments, because neither their income nor the proceeds from selling their available assets would ever cover what they owe," the ministry said.
Debt relief and personal bankruptcy are ways of dealing with insolvency that are supposed to make it possible for a debtor to make a fresh start and motivate active involvement in debt servicing. The ministry wants to get rid of the current access condition to debt relief, which is that a debtor must be capable of paying off the debt by 30 % within five years.
Authorities consider that barrier unfair. "The set-up of the current system allows for controlled bankruptcy, with a view to fulfilling the terms of reducing the debt, but only those who are sufficiently affluent or achieve sufficient revenues can be exempted from the debts that remain," the ministry spokesperson pointed out.
According to the bill, a debtor will be relieved if, within three years, the debtor repays at least half of the creditors' claims, or at least 30 % of the claims within five years, or will endeavor to repay the debt over the course of seven years, in which case the creditors may be satisfied with receiving less than 30 %. According to Czech Vice Prime Minister Pavel Bělobrádek (Christian Democrats - KDU-ČSL) the cabinet's proposal is the result of a compromise.
The Christian Democrats did not support the idea that in extreme cases debtors should not be required to repay anything. "That seemed demotivating to us, and we see a risk of credit fraud there. On the other hand, we did reach agreement that the Justice Ministry would acceed to our demand that full debt forgiveness would not apply to alimony or child support and that the time during which the debtor must demonstrate efforts to repay would be extended," the Vice PM said.
The ministry pointed out that debt collection often does not fulfill its purpose in the Czech Republic, because in cases where the same debt is sold to more than one collector, the creditors' claims are not recovered. "It is being proposed, therefore, that we make it possible for those debtors who are willing to resolve their situations to organize their financial circumstances such that they are able pay off their debts to their creditors to the maximum possible extent," the ministry spokesperson said.
Bělobrádek assumes the norm will be carefully discussed by MPs because two principles are at stake. The first is how to aid people who have gotten into a situation where they cannot repay anything and it does not make financial sense for them to even seek employment because all of their income above and beyond the minimum wage will be subjected to collections.
On the other hand, concern prevails that the amendment might be exploited to commit fraud and that people will assume loans that they never intend to repay. "We are looking for a measure that will aid us with creating a rational soution," the Vice PM said.
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