Czech Parliament could pass significant debt relief soon

The proposed cancellation of collections proceedings for debts that have long been uncollectable could also apply to older cases - on 10 June the Czech Senate returned a bill amending the code on collections proceedings to the lower house with additional adjustments so it can be rediscussed there. That means what has been called the "Summer of Mercy" is still being counted on and would involve ending hundreds of thousands of proceedings launched for debts originally worth CZK 1 500 [EUR 60] or less. 

Hundreds of thousands of fruitless collections proceedings could be affected if the bill is signed into law. There is also a plan to make the collection of physical assets and their confiscation from debtors' residences more humane. 

On the other hand, the controversial introduction of a requirement that collections agents work only within their own regions has not been approved by lawmakers. Some of the senators who have long supported introducing what is called the principle of territoriality have said they are now opposed to it with respect to this bill. 

Legislators fear including the requirement would jeopardize the rest of the changes to collections proceedings included in the legislative package, changes they consider beneficial. The Senate version of the bill would introduce a six-year period after which a collections agent would be required to halt proceedings that had yielded no returns, as long as certain conditions were met. 

Some such proceedings could be extended, but only to a maximum of 12 years. According to the Senate, the first such executions could be halted in 2023, one year after the amendment to the code on collections takes effect. 

The Senate's wording has also adapted the limitations on enforcing debts through selling physical items, including jewelry or collections of paintings, procedures that should apply just to personal debt, not to debts incurred by legal entities. The Senate version of the bill also proposes that a debtor could call off the sale of such movable items by paying at least CZK 1 500 [EUR 60] above and beyond the lawful monthly attachment to the debtor's wages. 

If the bill becomes law, creditors would receive 30 % of all debts originally worth CZK 1 500 [EUR 60] or less back from the state in the form of a tax break. The same would apply to collections agents - the state would reimburse them for part of their costs associated with enforcing debt repayment. 

The proposed change would also reduce the amount of the penalties that can be levied on unpaid debts owed for medical and social insurance. The chair of the Subcommittee on Collections, Insolvency and Debt in the lower house, Czech MP Marek Výborný (Christian Democrats - KDU-ČSL) is convinced that the Senate's current wording of the bill has a high chance of being adopted by the Chamber of Deputies.

"The version was discussed ahead of time with representatives of all the clubs in the lower house and I believe support for it will be found," he said at a press conference in the upper house. The decision by the Senate to adapt the rules for collections has also been welcomed by representatives of organizations aiding people in adverse circumstances. 

Those organizations have called the Senate version of the bill a significant step forward that could aid thousands of debtors and relieve the collections system at the same time. On the other hand, the Association of Creditors in the Czech Republic believes the Senate version of the bill constitutes an unacceptable interference with creditors' rights. 

The Chamber of Collections Agents of the Czech Republic plans to complain to the Constitutional Court over a particular provision of the bill if it becomes law. The Chamber anticipates collections agents' costs and those of all participants in collections proceedings will increase if the amendment to the code of collections is adopted. 

The professional body is also warning that many misunderstandings will ensue because various points of the amendment contradict each other, in their view, which means that it will be quite complicated to introduce all of the new rules into practice. According to data from the Chamber of Collections Agents, more than 749 400 people in the Czech Republic are involved in collections proceedings, or 7 % of the population. 

There are a total of 4.5 million separate proceedings underway. The total debt is estimated at more than CZK 319.2 billion [EUR 12.5 billion].