Consumer Bankruptcy

Information regarding the status of a case and the course of restructuring and bankruptcy proceedings can be verified in the National Register of Debtors (KRZ) available at: https://prs.ms.gov.pl/krz

Before the first meeting takes place, the advisor may request basic information necessary for the preliminary analysis of the legal and financial situation.

In particular, this may include information concerning:

• the total amount of debt and the number of creditors,
• enforcement proceedings being conducted (e.g. bailiff enforcement measures),
• ownership of shares in companies or business activity conducted,
• pending court proceedings,
• health condition (if it affects earning capacity or financial situation),
• inheritance acceptance and the existence of joint marital property,
• donations made or disposal of assets in recent years,
• documentation held, such as court judgments, agreements, administrative decisions or medical documentation.

Collection of this information enables proper preparation for the consultation and allows the proposal of adequate legal measures.

All current announcements together with regulations concerning the submission of offers are available on the dedicated webpage: Trustee’s Sale Announcements

Each determination of a creditors’ repayment plan requires a detailed and comprehensive analysis of the personal and financial situation of the Bankrupt by the bankruptcy trustee, in particular the Bankrupt’s maximum earning capacity and justified costs and expenses.

The bankruptcy trustee carefully verifies the income obtained by the Bankrupt before the declaration of bankruptcy and examines the Bankrupt’s experience and employment history by comparing earnings with those obtained on the same labour market.

The bankruptcy trustee also verifies whether the Bankrupt may undertake additional efforts to obtain alternative employment or achieve higher remuneration in a position corresponding to their qualifications and experience.

Other circumstances affecting the Bankrupt’s maximum earning capacity are also taken into account, such as health condition, childcare obligations, or care for ill family members.

As regards the duration of the creditors’ repayment plan, according to the Bankruptcy Law, the basic time frame is 3 years.

If it is established that the Bankrupt contributed to the state of insolvency or significantly aggravated it through gross negligence or intentionally, the maximum duration of the repayment plan is 7 years, and at the same time it cannot be shorter than 3 years.

Assessment of whether the Bankrupt acted intentionally or with gross negligence is made through evaluation of the rationality of managing their own assets, the circumstances in which they acted, and whether alternative conduct was possible, while comparing the Bankrupt’s actions to an objective standard of diligence.

Additionally, personal characteristics of the Bankrupt must be taken into account, such as age or illnesses preventing the Bankrupt from consciously directing their conduct.

As regards the possibility of establishing a repayment plan shorter than 3 years, this solution is most often applied to elderly or seriously ill persons whose situation indicates that establishing the standard repayment period would be inconsistent with humanitarian considerations.

Bankruptcy proceedings conducted with respect to elderly persons receiving retirement or disability benefits often end with discharge of liabilities without establishing a creditors’ repayment plan.

The possibility of discharge of liabilities without establishing a creditors’ repayment plan is primarily intended for persons whose personal and financial situation indicates a permanent lack of ability to perform even the smallest instalment under a hypothetical repayment plan.

This means that the appearance of an additional financial obligation resulting from such a repayment plan could lead the Bankrupt or members of the household supported by the Bankrupt into poverty.

In the event of a conflict between the principle of maximum satisfaction of creditors and the principle of consumer debt relief, the legislator gives priority to the principle of debt relief.

With regard to conditional discharge of liabilities without establishing a creditors’ repayment plan, the key factor is the temporary nature of the inability to perform such a repayment plan.

In practice, circumstances must exist indicating that within the next 5 years the situation of the Bankrupt will improve sufficiently to enable the establishment of a repayment plan.

Most commonly, conditional discharge without establishing a repayment plan occurs where the Bankrupt is ill, pregnant, temporarily unable to find employment, or required to care for children but will not be required to devote the same level of time to such obligations within the following 5 years.

As a rule, consumer bankruptcy proceedings end with debt relief.

Importantly, even where it is established that the Bankrupt contributed to the state of insolvency or significantly aggravated it through gross negligence or intentionally, this does not eliminate the possibility of debt relief but results in extension of the creditors’ repayment plan period to a maximum of 7 years.

The Bankrupt will not obtain debt relief if during bankruptcy proceedings (after declaration of bankruptcy) it is established that the Bankrupt intentionally caused or significantly aggravated the state of insolvency.

Intentional conduct should be understood as dissipation of assets or deliberate failure to perform monetary obligations.

Debt relief will also not be granted to Bankrupts with respect to whom the court, within 10 years prior to filing the bankruptcy petition, discharged all or part of their liabilities.

However, even in such cases, the bankruptcy court may discharge liabilities if justified by equitable considerations or humanitarian reasons.

The catalogue of liabilities not subject to discharge despite issuance of a decision on discharge of liabilities arising before the declaration of bankruptcy includes:

• maintenance obligations (alimony),
• liabilities resulting from annuities awarded as compensation for illness, incapacity for work, disability or death,
• obligations to pay criminal fines imposed by a court,
• obligations to repair damage and provide compensation for harm suffered,
• obligations to pay compensatory payments or monetary penalties imposed by a court as criminal measures or measures related to probation,
• obligations to repair damage resulting from an offence confirmed by a final court judgment,
• and liabilities intentionally not disclosed by the Bankrupt if the creditor did not participate in the proceedings.

Accordingly, other liabilities than those listed above are subject to discharge, including liabilities towards private‑law entities such as banks, non‑bank financial institutions, credit unions, and others, as well as liabilities towards public‑law entities, including unpaid taxes and social security and health insurance contributions payable to ZUS or KRUS.

Interest on the above‑mentioned monetary liabilities is also subject to discharge.

An indicative time limit within which bankruptcy proceedings should be completed — meaning issuance of a decision concerning establishment of a creditors’ repayment plan, conditional discharge of liabilities without establishing a repayment plan, or discharge of liabilities without establishing a repayment plan — is 6 months.

However, this applies only to proceedings conducted under the simplified procedure provided for in Article 491(1) section 1 of the Bankruptcy Law.

In practice, it is rarely possible to comply with this time frame due to the necessity of performing numerous activities in bankruptcy proceedings, including in particular:

• holding at least one meeting with the Bankrupt,
• determining the composition of the bankruptcy estate,
• taking possession of assets and securing them,
• preparing the bankruptcy estate for liquidation and its sale in accordance with bankruptcy law provisions,
• verification of claims filed,
• verification of information obtained from public authorities and institutions,

and verification of often extensive documentation, including especially documentation concerning debts, medical documentation, employment documentation and documentation relating to the Bankrupt’s assets.

Proceedings for the declaration of bankruptcy from the moment of submission of the bankruptcy petition to the court should result in the declaration of bankruptcy within two months.

It should be remembered, however, that this period may be extended due to the significant workload of individual judges resulting primarily from the number of bankruptcy cases awaiting examination.

Additionally, where not all required documentation or declarations are attached, the court may request supplementation of formal deficiencies, which will also extend the time required for examination of the case.

So‑called consumer bankruptcy is intended for natural persons not conducting business activity who have lost the ability to perform their due monetary obligations on time.

In practice, this is most often associated with a prolonged inability to perform due monetary obligations.

Although the Bankruptcy Law establishes a presumption according to which a person is considered insolvent if the inability to perform obligations persists for 3 months, the general rule is that a debtor is insolvent if they have lost the ability to perform due monetary obligations.

Additionally, on the date of declaration of bankruptcy the debtor may not conduct business activity, for example in the form of a sole proprietorship or as a partner in a partnership.

However, this does not prevent the debtor from acting as a member of the management board of a capital company or as a shareholder. In the latter case, the shares become part of the bankruptcy estate and will be subject to liquidation.

As a rule, remuneration for work, remuneration under a mandate contract, remuneration under an agency agreement, and service remuneration are subject to seizure in the amount of 50%, but not exceeding the level of the minimum remuneration for work.

In the case of retirement or disability benefits or incapacity benefits, seizure is applied in the amount of 25%, but not exceeding the minimum amount of such benefits.

In the case of maintenance obligations (alimony), seizure may reach up to 60% of the above‑mentioned amounts without limitation.

However, the Bankruptcy Law provides the possibility for the judge‑commissioner (designated judge), upon application of the Bankrupt or the bankruptcy trustee, to determine a different portion of the Bankrupt’s income that does not form part of the bankruptcy estate.

When making such a decision, the judge‑commissioner takes into account the specific needs of the Bankrupt and persons dependent on the Bankrupt, including their health condition, housing needs and the possibility of satisfying those needs.

As a rule, as of the date of the declaration of bankruptcy, the assets of the bankrupt become the bankruptcy estate, which serves to satisfy the bankrupt’s creditors. The Bankruptcy Law narrowly defines the catalogue of assets that do not form part of the bankruptcy estate. However, even in this case, it is possible for the bankrupt, a creditor or the bankruptcy trustee to request a determination as to which assets belonging to the bankrupt form part of the bankruptcy estate.

If the bankrupt owns a house, an apartment or a cooperative ownership right to residential premises, such property will be subject to liquidation in accordance with the Bankruptcy Law and will certainly not be excluded from the bankruptcy estate. The same applies to valuable assets, such as a car.

It should, however, be noted that if the bankruptcy estate includes residential premises or a single-family house in which the bankrupt resides, and it is necessary to satisfy the housing needs of the bankrupt and persons remaining dependent on the bankrupt, then from the amount obtained from its sale, a sum is allocated to the bankrupt corresponding to the average rent for residential premises in the same or a neighbouring locality for a period of from twelve to twenty-four months.

Additionally, the fact that creditors obtain a higher level of satisfaction as a result of the distribution of the funds of the bankruptcy estate has a positive effect on the future determination of the creditors’ repayment plan.

The activities of the bankruptcy trustee consist primarily of verification activities concerning actions performed by the bankrupt prior to the declaration of bankruptcy, determination of the composition of the bankruptcy estate, determination of the causes of insolvency, and entering into pending court, administrative and administrative court proceedings.

The bankruptcy trustee also carefully verifies claims submitted in the bankruptcy proceedings.

During the bankruptcy proceedings, at least one meeting with the bankrupt is also held, either at the bankruptcy trustee’s office or at the bankrupt’s place of residence.

Depending on the circumstances of the case, the activities of the bankruptcy trustee may also extend beyond those described above.

Where a creditors’ repayment plan has been established or a conditional discharge of liabilities without establishing a creditors’ repayment plan has been granted, the bankrupt is obliged to submit an annual report.

If a creditors’ repayment plan has been established in the case, the report should indicate the income earned, the amounts repaid under the creditors’ repayment plan, and assets acquired with a value exceeding the average monthly remuneration in the enterprise sector excluding profit-sharing bonuses for the last quarter of the reporting period, as announced by the President of the Central Statistical Office.

If the Court conditionally discharged liabilities without establishing a creditors’ repayment plan, the report should indicate the income earned and assets acquired with a value exceeding the average monthly remuneration in the enterprise sector excluding profit-sharing bonuses for the last quarter of the reporting period, as announced by the President of the Central Statistical Office. It should also include a description showing whether the situation of the bankrupt still indicates that it is impossible to establish a creditors’ repayment plan.

A copy of the annual tax return (PIT) filed should be attached to such reports.

The reports referred to above must be submitted by the end of April of each calendar year.

Additionally, during the period of performance of the creditors’ repayment plan, the bankrupt may not perform legal acts concerning their assets which could worsen their ability to perform the creditors’ repayment plan.

The bankrupt should also not acquire assets with a value exceeding the average monthly remuneration in the enterprise sector excluding profit-sharing bonuses for the last quarter of the reporting period, as announced by the President of the Central Statistical Office.

On the date of the declaration of bankruptcy, banks are obliged to block all bank accounts of which the bankrupt is the account holder.

The rules for using bank accounts should be agreed with the bankruptcy trustee, who may limit the possibility of withdrawals, for example up to the amount of the minimum wage for work.

Additionally, some banks do not have a developed procedure for the event of a declaration of consumer bankruptcy, and as a consequence full unblocking of the bank account may prove impossible.

This results, for example, in a situation where cash may only be withdrawn from ATMs or at the bank’s cash desk.

The Bankruptcy Law provides for two principal modes of conducting bankruptcy proceedings with respect to a natural person not conducting business activity.

The first, and by far the most common, is the simplified procedure specified in Article 491(1) section 1 of the Bankruptcy Law. It allows bankruptcy proceedings to be conducted much more quickly.

However, the Court may decide that bankruptcy proceedings will be conducted in accordance with the provisions applicable to entrepreneurs, if this is justified by the significant size of the debtor’s assets, the substantial number of creditors or other justified expectations as to the increased complexity of the proceedings.

This means that the bankruptcy trustee will have to carry out a number of additional activities, including the preparation of a list of claims, a distribution plan, and possibly a separate distribution plan.

The liquidation of the bankruptcy estate is also characterised by the need to perform additional activities.

Discharge of liabilities occurs at the moment of completion of the creditors’ repayment plan, that is, when the last instalment is paid and posted to the creditors’ accounts.

However, this does not mean automatic discharge of liabilities. For this purpose, an application must be submitted to the bankruptcy court for the issuance of an appropriate decision on the discharge of liabilities arising before the date of the declaration of bankruptcy.

That decision is, however, declaratory in nature.

In the case of conditional discharge of liabilities without establishing a creditors’ repayment plan, discharge occurs after the lapse of 5 years from the date of issuance of the decision on conditional discharge of liabilities without establishing a creditors’ repayment plan. In this case as well, it is necessary to apply for issuance of the appropriate decision.

If discharge of liabilities occurred as a result of the issuance of a decision on discharge of liabilities without establishing a creditors’ repayment plan, discharge takes place when that decision becomes final and binding.