Over a month ago, on 24 March 2020, an amendment to the bankruptcy law came into force, i.e. the Act of 30 August 2019 amending the Bankruptcy Law and certain other acts.

As stated in the explanatory memorandum to the draft act, the direct reason for the implementation of the new provisions was the emergence of a large number of practical problems caused by the gradual (since 2014) liberalisation of bankruptcy law, especially in the area of consumer bankruptcy.

As stated in the explanatory memorandum to the draft act, the direct reason for implementing the new provisions was the emergence of a large number of practical problems caused by the gradual liberalisation of bankruptcy law (since 2014), particularly in the area of consumer bankruptcy.

A particularly important issue was the bankruptcy of former entrepreneurs using the procedure provided for consumers (source: explanatory memorandum to the draft bill, print no. 3480). Until now, this solution was available to persons who had ceased their business activity at least one year before the date of filing for consumer bankruptcy. In addition, such persons were obliged to first fulfil their obligation to file for bankruptcy as entrepreneurs (Article 491⁴(2)(3) in conjunction with Article 21 of the Bankruptcy Law). This legal situation generated a burden on the courts and proceedings authorities, which formally proceeded with consumer bankruptcy, but de facto dealt with business bankruptcy. This gave rise to organisational, financial, technical and time-related problems, i.e. problems related to the broadly understood economics of the proceedings.

Additional, most frequently raised problems included: regulations – or rather the lack thereof – concerning the protection of the bankrupt person’s former spouse, securing financial resources for the bankrupt person’s dependents, and issues related to the bankrupt person’s access to correspondence.

In response to the above-mentioned problems, the legislator introduced the following solutions in the amendment described here:

1. The possibility of declaring consumer bankruptcy in a simplified procedure without a judge-commissioner – this solution applies to the simplest cases, mainly those where the debtor has no assets and therefore there is no bankruptcy estate in the relevant proceedings; this solution is intended to relieve the courts and significantly speed up the proceedings.
2. The possibility for debtors to enter into arrangements with creditors under the guidance of a licensed restructuring advisor, who will oversee the implementation of the arrangement with minimal involvement of the court. This solution is based on the Western model, which is mainly used in Anglo-Saxon countries, and is intended to reduce the number of new proceedings in which it is necessary to declare the debtor bankrupt.
3. Abandonment of the so-called negative grounds for declaring bankruptcy. This means that the court will no longer be required to examine, at the stage of declaring bankruptcy, whether the debtor is at fault for causing or aggravating the state of insolvency. Consequently, the only criterion for declaring bankruptcy is currently the existence of insolvency, i.e. a situation in which the debtor has permanently lost the ability to meet their due financial obligations. Nevertheless, it should be noted that improper conduct on the part of the debtor, including, among other things, harming creditors, will be examined at the stage of establishing a repayment plan for creditors.
4. Introduction of a pre-packaged liquidation of assets for debtors who are not entrepreneurs. The legislator is introducing the possibility of a quick sale of all assets, rather than individual components, in an institution previously available only to entrepreneurs. This solution is intended to increase the flexibility and speed with which a bankrupt person can emerge from debt and return to financial freedom. The debtor can now choose whether to file for bankruptcy, enter into an arrangement with creditors or opt for a pre-packaged liquidation of all assets.
5. The possibility of extending the repayment plan to 5 years when entering into an arrangement with creditors and the introduction of a conditional remission of liabilities for a period of 5 years, which means that, at the request of the bankrupt person or creditor, the court may revoke the decision on conditional cancellation of the bankrupt person’s liabilities without a repayment plan for creditors and establish a repayment plan for creditors even after this period.

The above issues relate to what I consider to be the most important changes concerning the position of the debtor in bankruptcy proceedings, especially with regard to natural persons not engaged in business activity. However, this article does not exhaust the issues related to the extensive amendment of bankruptcy law, so further changes that are important for both debtors and creditors will be discussed in subsequent articles. I encourage you to follow our website and blog posts.