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June 24, 2018
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Czech Republic: Conditions for leaving the debt trap may be relaxed

28.3.2018 7:13
Czech Prime Minister Andrej Babiš and Czech Justice Minister Robert Pelikán at a press conference after the cabinet session on 17.1.2018. (PHOTO:
Czech Prime Minister Andrej Babiš and Czech Justice Minister Robert Pelikán at a press conference after the cabinet session on 17.1.2018. (PHOTO:

The conditions for people in the Czech Republic to leave the debt trap may become more relaxed. The lower house, despite criticism from members of the Civic Democratic Party (ODS), has supported the Government's amendments to the bankruptcy law that will make it possible for debtors to enter the debt relief process irrespective of how much they owe.

People would be required to pay off as much of the debt as they are able to under the new arrangements. The amendment survived an ODS proposal for the bill to be returned to the cabinet for further development and has been sent for assessment to the Constitutional Law and Social Committees in the lower house.

Changes will apparently be proposed to the bill in those committees. The amendment does not mean that debt amnesty will be made possible, emphasized outgoing Czech Justice Minister Robert Pelikán (ANO).

Relaxing bankruptcy conditions would, in the minister's view, give a second chance to people who have fallen into the debt trap and who are not able, despite all of their efforts, to prevent their debt from growing, to say nothing of paying it off. "Today they are de facto condemned to economic death," the minister said.

The amendment assumes the debt relief process would last either three, five or seven years, depending on the amount of the debts being paid off. Currently a debtor must be able to pay off at least 30 % of all debts within five years before qualifying for bankruptcy, and the amendment would abolish that condition.

No such limits would be established if the amendment is adopted. "Debts are meant to be paid," emphasized Czech MP Ivan Adamec (ODS) in his arguments against the Government's bill.

In Adamec's view the problem of people in the debt trap simply does not exist and the bill would mean their obligations would be covered using other people's money. "This bill is unfair to the people who are actually paying their debts off," his party colleague, Czech MP Jan Bauer, told the lower house.

Bauer said there has been no analysis of whether the amendment would be in accordance with Constitutional and statutory rules, of how much it would cost if implemented, and whether it might not lead to massive abuses that will cost creditors. "Any blanket debt relief is a gamble," agreed Czech MP Hana Aulická Jírovcová (Communist Party of Bohemia and Moravia - KSČM).

Czech MP Dominik Feri (TOP 09) said that if the amendment is not changed in certain respects during the next round of negotiations he will not vote for it. According to former Czech Justice Minister Helena Válková (ANO) the amendment would risk paralyzing the bankruptcy courts.

The bill would mean repayment of debts would be supervised by the courts just as a formality, in her view, and all debtors would be granted relief. Válková believes the amendment could be drafted to apply just to those debts that were incurred prior to it taking effect, not to any future obligations.

Legislators from some other political parties essentially support relaxing bankruptcy conditions, but have announced they will be making proposals to adapt the current bill. "We are heading in the right direction. People must leave the debt trap within an acceptable amount of time," SPD chair Tomio Okamura said.

According to Czech MP Lukáš Kolářík (Pirates) the chances of debts being paid would be increased by debtors entering bankruptcy. "I believe the consequence of debate in the Chamber of Deputies will be a law that restores the dignity of indebted people and gives them a chance to start over," said Czech MP Jan Chvojka (Czech Social Democratic Party - ČSSD), the bill's rapporteur.

Debt relief or personal bankruptcy is a way to resolve a debtor's financial decline in order to facilitate a new start and motivate the debtor to become actively involved in amortization of the debt. The amendment assumes a debtor will be absolved if he or she pays at least half of the amount owed to creditors within three years, or at least 30 % within five years, or makes a good faith effort to pay the debt off over seven years - in which case the creditors can have been satisfied with less than 30 % of what is owned and maybe even with nothing.

What would be necessary would be a regular monthly payment to the bankruptcy administrator. On the other hand, the amendment would introduce new limitations on allowing absolution from debt.

Under the amendment the bankruptcy court could reject an application, for example, if a debtor has not been able to pay creditors in full for back alimony or child support. The exact same amendment was submitted to the lower house by the previous governing coalition of ANO, ČSSD and the Christian Democrats (KDU-ČSL) but was not discussed before the autumn elections.

ČTK, translated by Gwendolyn Albert
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