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1 Faculty of Social Studies, University of Ss. Cyril and Methodius in Trnava, (SLOVAK REPUBLIC) Email: firstname.lastname@example.org
Personal bankruptcy allows an individual person to get rid of financial obligations. Legislative regulation of the market economy of post-communist countries of Central and Eastern Europe is characterized by one specific feature – a very weak protection of debtors and often total absence of opportunities for personal bankruptcy. Since 2006, personal bankruptcy is enacted also in Slovakia.
Even though, this possibility is used by only a tiny percentage of borrowers. Current statistics indicate that the using of this option increases year by year, but it is still a low number of the population. The contribution brings the issue of personal bankruptcy which addresses the unfavourable financial situation of individuals in that case, if they fulfil the statutory requirements as well as the legal process of bankruptcy proceedings in Slovak Republic.
In the conditions of Slovak Republic, business activity has the legal basis and also wide application. There are introduced various forms of the business activities, while the entrepreneur can freely choose the field of the business. However, such independence and, so-called, business freedom naturally brings also the “opposite” side of the business activity, which is the business risk. The business risk means that as the entrepreneur has free decision for business-making, so he has to bear possible loss from unsuccessful business. These consequences can be solved by various methods.
One of these methods is proceeding, of which objective is the economic and legal settlement in the case of unsuccessful business. Such case is known as the bankruptcy, which does not enable further continuing in the business activity. So-called “personal bankruptcy” is already well-known term, which is used for determination of by-law-managed process, by which normal person can get rid of debts. The term “personal bankruptcy” is not included in any legal provision of Slovak Republic. The Bankruptcy and Restructuring Act No. 7/2005 Coll., (further as “Act”) understands under this term the bankruptcy proceeding and relief of the debt of normal person. It is clear that this process consists of two stages, while the debt relief of normal person can occur only in the case of successful bankruptcy proceeding.
The objective of this paper is the elaboration of complete theoretical knowledge about the essence and legal enactment of the personal bankruptcy in the conditions of Slovak Republic, formation of legislation by familiarization with the process of personal bankruptcy realization. In the paper, we have used mainly theoretical methods of scientific work, such as the method of content-causal analysis and synthesis of knowledge related to the topic of the paper, descriptive methods, as well as methods of induction and deduction. The source of information was monographic specialized literature, textbooks and guidebooks of domestic and foreign authors, acts and generally mandatory legal provisions or other technical documents.
Legislative regulation of market economy of post-communist states of Central and Eastern Europe is typical by one specific feature which is a very weak protection of debtors and often total absence of the possibility for personal bankruptcy. Until today, Hungary does not have the act, which enables personal bankruptcy to normal persons.1 In radically reforming Latvia, personal bankruptcy is possible since March 2013, i.e. more than twenty years after the transition to the market economy.
Personal bankruptcy is enacted also in Slovakia since 2006. Despite it, this possibility was used only by a tiny percentage of debtors, mainly regarding to its relatively high costs. Current statistical data indicate that the use of this possibility increases on year-on-year basis; however, it is still very small percentage of the population despite the fact that the number of execution proceedings exceeded three million. This form of solution of personal financial problems is very well-known and applies in the states, such as the USA, Great Britain or Germany.
The pioneer in the Central Europe context is Czech Republic, which enables to the creditors of the debtor in bankruptcy and in insolvency to choose from two alternatives. The first option is the liquidation of current assets of the debtor, and the second option is the acceptation of instalments from the income during next five years.
Introduction of higher protection of debtors as normal persons against the creditors has also the macroeconomical justification. Fan and White  concluded in their analysis that in the particular states of the USA, in which significant part of the assets is not subordinated to the bankruptcy, is much higher business activity of the population. However, this event has very simple explanation. It is mainly more available bankruptcy and easier restart, which moderates the burden of business risk bore by normal person. Gropp, Scholz and White  also point out that such personal bankruptcy can have the consequence in the decrease of the credit offers for less solvent clients and the orientation of the creditors on wealthier classes of the population.2
In Slovak conditions, such economic effects could show also in positive light, for example in the form of the decrease of the activity of speculative creditors, who seek the debtors with low credit credibility. It is also necessary to note that the objective of personal bankruptcy is also gradual satisfaction of creditor’s claims; however, by the bankruptcy of the debtor it is often not possible to extort whole amount of the debt. Despite it, it is necessary to ensure that the consequences of the bankruptcy will be sufficiently consequential in order this legal institute will not be misused. Besides the loss of the part of the assets and income, these can include also temporary impeding of the access to the credits.3
Personal bankruptcy process
Conditions for the realization of personal bankruptcy (legal term – small bankruptcy) are stated in the Bankruptcy and Restructuring Act No. 7/2005 Coll. The Parliament approved the amendment of the Bankruptcy and Restructuring Act No. 7/2005 Coll. by which it wants to help people living in the circle of executions and debts by making easier and better access to, so-called, personal bankruptcy. The amendment is effective since March 1st, 2017. According to the reason report, the purpose of the amendment is the solution of the bankruptcy of normal persons, which in Slovakia represents significant economic-social problem. The number of persons, who submitted the proposal for the debt relief during the whole period of the effect of recent legislation, did not reach originally expected level. The act amendment in the interest of the protection of debtors introduced also the term non- damageable value of the residence. The amount of this non-damageable value (10.000, €) should serve for the moderation of negative impact on the debtor. According to the Ministry of Justice, such determined amount should account for minimal purchase price, for which is normal person able to ensure the accommodation in single-room apartment, or similar realty in SR.4
However, personal bankruptcy in Slovak conditions does not guarantee the debtor sufficient level of minimal protection against the creditors necessary for surviving. In the case of personal bankruptcy (small bankruptcy) occurs the liquidation of maximal majority of debtor’s assets, and last, but not least, if necessary, also the realty, which serves as the debtor´s main residence.
Weak position of the debtor gives advantage mainly to the speculative creditors, e.g. some companies not registered in the Register of Creditors of NBS, which benefit from low financial literacy of the population. Mentioned state is also good for the business, which has formed in last two decades related to the extortion of the claims. As in the case of Hellman’s theoretical model , on the side of winners is the financial elite, while the interest of the rest of the population is the reform of the insolvency laws.
Natural part of the market economy legislation in the USA and Great Britain is appropriate protection of debtors. In the case of non-secured debts, the legislation on the insolvency proceeding of these states enables that the debtor will be obliged to keep significant part of the assets and common income. In some states of the USA, the main residence or the common income is not subordinated to the insolvency proceeding.
The amount corresponding to non-damageable value of the residence will be paid to the debtor on specific bank account created by the trustee. This account will be protected against the execution and bankruptcy for the period of 36 months.
The process of personal bankruptcy begins by the debtor´s finding of his financial insolvency, which means that he is not able to pay invoices, social and health insurance, etc. Against the debtor must begin the execution proceeding or other similar proceeding, while it is enough that he has at least one liability 180 days after the maturity period, and also fulfilled the condition of personal bankruptcy announcement. By personal bankruptcy it is possible to achieve the debt relief, meaning the debtor gets rid of all debts, which were not refunded in the bankruptcy or by the instalment calendar. The debtor will only get rid of debts, which were formed before the announcement of the bankruptcy, and also will get rid of liabilities, which could occur in the future on the basis of to that time concluded contracts or liabilities. The claims against the debtor become unenforceable by the debt relief in the extent, in which the court got him rid of debts.
The bankruptcy preferably serves for persons without any assets and wanting to get rid of debts in shortest time possible. The instalments calendar is mainly for persons, who have some assets and they do not want to lose it during the debt relief process. The law enables them to keep the part of the assets, and despite it to get rid of debts. However, this process is financially demanding and time- consuming. The debtor can choose which option is better for him.
The process of personal bankruptcy begins with the submission of the proposal to the court, concretely the proposal of bankruptcy announcement or the proposal for setting the instalment calendar. By the submission of this proposal, the debtor must be represented by the Legal Assistance Centre or the lawyer assigned by the Legal Assistance Centre. The law limits the possibility of repeated debt relief on once per ten years. The bankruptcy court for the given case is the district court in the residence of the regional court, according to the residence of the debtor.
The proposal of bankruptcy announcement must fulfil necessities stated in the provision § 12 of the Bankruptcy Act. It must be clear from the proposal, who submits it, to which issue it relates, what is its objective, must be signed and dated, and must contain necessary attachments. If the proposal is submitted by the debtor, attached must be also the list of the assets, list of liabilities, list of related persons and the receipt of the advance-payment for the remittance of reward and expenses of provisional trustee in the amount of 500 €. According to new legislation, the debtor does not have to fulfil the condition of minimal assets in the value of 1,659.70 €.
The court decides about the debt relief to 15 days from the delivery of the proposal, which fulfils all legal necessities, in the resolution of the bankruptcy announcement, or the resolution of the setting of the instalment calendar, and divests the debtor of debts in the extent, in which they will not be refunded in the bankruptcy or by the instalment calendar. Claims, which can be refunded only in the bankruptcy or by the instalment calendar, without regard on whether they were announced or not, become unenforceable against the debtor in the extent, in which the court divested the debtor of the debts. In general, refunded can be only those claims, which were created before the bankruptcy announcement or by the setting of the instalment calendar. Untouched by the decision of the debt relief remain the claims from the responsibility for the damage caused on health, or caused by intentional acting, the claim of the child on alimony, occupational-legal claims against the debtor, financial penalty according to the Penal Code, and others.
The whole debt relief process is much faster, than current form of the bankruptcy proceeding and theoretically, the debtor can get rid of all debts to 15 days.5
In the case that the debtor did not have an honest intention by the debt relief, the law gives to concerned creditors the opportunity to claim on the court the cancellation of the debt relief to six years from the bankruptcy announcement or from the setting of instalments calendar. The Act states also other cases, when the behaviour of the debtor is considered as dishonest, mainly in the relation to the concealing of the assets, creditors or other important reasons.
The debtor has an honest intention mainly if we can conclude from his behaviour that he has an honest effort to solve his debts within his limits and possibilities, if he cooperates with the trustee and creditors, if he has an effort to find new occupation. The court examines the honest intention of the debtor only in the proceeding about proposal for the cancellation of the debt relief for dishonest intention. Honest intention of the debtor is examined neither in the bankruptcy proceeding, nor in the proceeding for setting the instalment calendar.
By the examination of the debtor’s conditions, the trustee uses information from the list of the assets, list of creditors and information provided by the debtor, creditors, or other persons. The trustee executes investigations with professional care regarding assets and liabilities, which are not time- demanding and can be ensured with minimal costs.
The court determines the trustee on the basis of random selection by means of technical and program means approved by the Ministry.
The proposal of the bankruptcy announcement can be submitted by the debtor, who is the normal person. The proposal is submitted by specific form. The proposal of the bankruptcy announcement has to contain these necessities: résumé of the debtor with the description of current life situation, list of related persons, list of current assets of the debtor, list of creditors, as well as announcement of the debtor about the financial insolvency and the receipts not older than 30 days, which prove there is execution proceeding or other similar proceeding against the debtor. Subsequently, latest to 15 days from the delivery of this proposal, the court announces the bankruptcy, determines the trustee and invites the creditors to announce their claims .
The trustee acts in the name and on the account of the debtor, and is authorized to manipulate with the assets of the debtor. The assets, which belonged to the debtor to the day of the bankruptcy announcement, are subordinated to the bankruptcy. The bankruptcy announcement cancels share-free co-ownership of married, i.e. to the bankruptcy belong all assets in the debtor’s share-free co- ownership of married, if they are not already settled up.
After the beginning of the bankruptcy proceeding, creditors announce their claims. These announcements in the form of application form have to fulfil all legal necessities and must have all attachments. Creditors have to deliver the applications forms with attachments to the court and to the trustee to 45 days. The trustee is authorized to negate this claim. This right has also each creditor. If the claim was negated, the trustee is obliged to record this negation to the list of claims. Within the period of 60 days from the bankruptcy announcement, the trustee is obliged to create the summary of the debtor’s assets and without any delay to publish it in the Commercial Bulletin. Assets recorded in the summary of the assets cannot be transferred, rented for long-term, establish on it the right for the foreign object, or in other way decrease its value by other person, than the trustee. After the summarization of the assets, the trustee is authorized to liquidate the assets. The method of the assets liquidation is stated in the Bankruptcy Act. For example, it is the sale of the property, announcement of public competition or the auction. After the liquidation of the assets, the trustee subsequently refunds the creditors according to the schedule, which was in advance approved by the court. After complete refunding of creditors, the court issues the resolution of cancelation of the bankruptcy. This resolution is published in the Commercial Bulletin .
The process of personal bankruptcy should protect the part of the assets and income of the debtor in the bankruptcy necessary for surviving. Regarding the protection of the debtor, currently effective legislation in Slovakia falls behind the Western countries. The quality legislation of personal bankruptcy sets the balance in the rights and obligations of debtors and creditors. It can serve as the partial solution for many unwanted societal events. Besides moderation of acute social problems, it creates the environment, which forces the creditors to elaborate responsible valuation of credibility of potential debtors, mainly in the case of purpose-free consumer credits. By the amendment of the Bankruptcy and Restructuring Act, the Government of SR could set balanced state, and so to move Slovakia one step forward. By the paper, we wanted to point out the increase of awareness of citizens that the financial insolvency is not the end of the world... Personal bankruptcy is not the nightmare.
It is the way, by which we can balance our debts forever, and also the opportunity to start new life without liabilities.
1. Bethlendi, A., Máté, J., ‘Magáncsod Magyarországon: Pro És Kontra (Osobný bankrot v Maáarsku: prea proti)’. Pénzügyi Szemle. (online: 2012-28-08), Available at: http://www.penzugyiszemle.hu/tanulmanyok- eloadasok/magancsod-magyarorszagon-pro-es-kontra
2. Domonkoš, Š., Osobný bankrot po slovensky. Denník Referendum. Názory. (online: 2013-18-02), Available at: http://denikreferendum.cz/clanek/tisk/15010-osobny-bankrot-po-slovensky
3. Valcek, A., Osobný bankrot by mal byt dostupnejší. (online: 2010-11-04). Available at: http://ekonomika.sme.sk/c/5623612/osobny-bankrot-by-mal-byt-dostupnejsi.html
4. Available at: http://www.ulclegal.com/sk/bulletin-pro-bono/2013/01/4614-osobny-bankrot, accessed on December 2016.
5. Available at: http://www.drs.sk/riesenia_dlhov-osobny_bankrot.html, accessed on December 2016.
1. Hellman, J. S. (1998). Winners Take All: The Politics of Partial Reform in Postcommunist Transitions. World Politics 50 (2), pp. 203–234.
2. Fan, W., White, M. J. (2003). Personal Bankruptcy and the Level of Entrepreneurial Activity. Journal of Law and Economics 46 (2), pp. 543–567.
3. Gropp, R., Scholz, J. K., White, M. J. (1997). Personal Bankruptcy and Credit Supply and Demand. The Quarterly Journal of Economics 112 (1), pp. 217–251.
4. Štofková, P. (2012). Postavenie správcu v konkurznom a reštrukturalizacnom konaní. Iura Edition, Bratislava, 210. ISBN 978-80-8078-561-1.
5. Durica, (2012). Zákon o konkurze a reštrukturalizácii Komentár. C.H.Beck, Bratislava, 1148. ISBN 978-80- 89603-00-8.