How does debt relief work | Debt Consolidation

Recently, the media has often talked about an amendment to the Insolvency Act, which will bring more people to debt relief. The amendment came into effect on 1 June 2019 and simplified the debt relief process.

We receive daily questions about this so we’ve created an article to learn:

  • Summary of basic information, what is debt relief and the main benefits.

  • STEP by STEP in brief how debt relief works

 

Debt relief according to the Insolvency Act is an effective and legal way of solving debts, which has been operating in the Czech Republic since 2008. Currently, more than 110,000 people in the Czech Republic are in the process of debt relief. Over the past 12 months in the Czech Republic, the court has allowed debt relief to more than 18,000 people, of which more than 10% of people turned to our counseling center at the very beginning.

 

Debt relief is intended by law for those who are unable to pay their debts.

Debt relief is intended by law for those who are unable to pay their debts.

The debtor must have debts with at least two creditors. In order to qualify for debt relief, the applicant must also comply with other legal requirements.

A great relief and finally stress-free, which is often the first benefit for people.

Enforcers take a break, the amounts owed will stop growing, the execution will stop. With a little exaggeration, debt relief can be described as such a way out of hell. Whoever sets out for it, awaits a journey that is not easy but worthwhile. At the end comes a restart, starting with a clean shield – from scratch and without debt.

 

Debt relief is applied to the regional court, which then decides.

Debt relief is applied to the regional court, which then decides.

The application is submitted electronically, the court is not personally attended, even during the discharge.

 

How much the debtor pays in debt relief is individual.

How much the debtor pays in debt relief is individual.

It determines the amount of debts, the amount and until when the debtor is able to pay. It also has an effect if the debt relief applicant is a 2nd or 3rd-degree old-age or disability pensioner.

In debt relief, the rule is that 100% of their debts can be paid at maximum, but the minimum percentage is not fixed, ie. in practice, it may happen that the debtor pays 5% of his debt during debt relief and the debt relief may be successful.

However, as a rule, the debtor must be able to repay creditors at least as much as the insolvency trustee’s remuneration and cash expenses are paid on a monthly basis. More precisely, this means that in a debt trap he must prove that he is able to repay at least approximately CZK 2,200 per month and in the case of a married couple at least approximately CZK 3,300.

 

 

Summary of basic information, what is debt relief and the main benefits.

The main benefits of debt relief:

  • The seizure has stopped and the debt has increased overall.

  • The pressure of creditors, executors and enforcers will end.

  • As a rule, the repayment of debts is stopped for 4 to 8 months.

  • All debts are consolidated into one monthly installment.

  • The law allows for the forgiveness of most of the debt.

 

The seizure has stopped and the debt has increased overall.

The volume of debts will no longer be increased by any interest or fines, but will remain the current amount at the date of the bankruptcy decision. At the moment of the decision on bankruptcy, the debt will no longer increase. No interest and fines will be added anymore, even in execution.

 

The pressure of creditors, executors and enforcers will end.

Creditors, enforcement agencies and bailiffs will cease exerting pressure and stop recovering amounts due. This is the so-called legal protection of the debtor. Obligations are solved according to the Insolvency Act and they have to follow it.

 

As a rule, the repayment of debts is stopped for 4 to 8 months.

As a rule, the repayment of debts is stopped for 4 to 8 months.

From the filing of the insolvency petition until the new repayment schedule is set, the debtor pays nothing to the creditors, so people tend to be happy for the time after repayment. The time when the new repayment schedule begins is individual, depending on several circumstances, moreover, the courts have no time limit, so the workload and speed of the court also depends. However, experience shows that this is usually 4-8 months. If the debtor has executions and wage deductions, wage deductions continue to be made, but they are not sent to the bailiff but are deposited in the employer’s account until the court has decided.

 

All debts are consolidated into one monthly installment.

All debts are consolidated into one monthly installment.

In debt relief, a completely new payment schedule is set, which is interest-free and the amount of the monthly payment is adjusted to the current amount of the debtor’s income. In general, the more income a person has, the higher the monthly payment.

Unless otherwise specified, each monthly installment is calculated according to the current level of income in a given month, which in practice means that if income increases, the installment will also increase, and vice versa if income decreases, the monthly installment will also decrease.

Other factors such as the cost of living, maintenance obligations, medicines, etc. may affect the amount of the repayment schedule. If the debtor has more valuable assets, such as real estate, debt relief can be dealt with by selling assets or by combining the sale of assets and the repayment schedule.

 

Creditors must file claims on time, otherwise they will lose money.

Creditors must file claims on time, otherwise they will lose money.

The creditors have 60 days from the court invitation to file their claims in the insolvency proceedings, unless they do so, the claim will not be counted. However, the creditors keep an eye on the deadline, so it cannot be relied on to forget to file a claim, but sometimes it really happens that some of the creditors do not lose their claim, thus losing the right to receive money.

 

Debt relief can end successfully in 3 years.

Debt relief can end successfully in 3 years.

Debt relief can jump in as little as 3 years if the debtor repays at least 60% of his debts to creditors within three years. Debt relief for old-age pensioners and 2nd and 3rd degree disabled pensioners is automatically for 3 years.

 

Debt relief will end in 5 years.

Debt relief will end in 5 years.

If the debtor fails to pay creditors at least 60% within 3 years, debt relief continues. It will end in 5 years if the debtor pays at least 30% of his debts within five years.

In the event that a debtor repays less than 30% of debts (eg 10%) within 5 years, the court will consider whether the debtor has made every effort to repay the creditors as much as possible. If the court finds that the debtor has made sufficient efforts to repay the maximum, the remaining debts will be forgiven and the debt discharge will end successfully.

 

Debt relief will end sooner if the debtor pays 100% of his debt.

The debt relief can also be canceled at any time during the course of the process. This is most often the case when the debtor does not comply with legal obligations.