How to apply for insolvency? We have detailed instructions

Quick overview

• You can apply for insolvency (debt relief) if you have multiple creditors, debts more than 30 days overdue and are unable to pay them.
• The petition is filed with the regional court and must include a complete list of debts, assets and income.
• Once the proceedings have been initiated, the foreclosure is stopped and the debt settlement process begins, which usually takes 3-5 years.

Not sure if you qualify to apply for bankruptcy or have any questions about bankruptcy? We will be happy to advise you.

What is insolvency and when to apply for it

Insolvency means a state of bankruptcy – a situation where the debtor is unable to meet his or her obligations in the long term. According to the law, it is insolvency if:

• you have multiple creditors,
• you default on your debts more than 30 days after they are due
• and you are unable to pay them in the future.

You can also go bankrupt because you are over-indebted if your liabilities exceed your assets. Thus, insolvency is not just about insolvency, but also about the real value of your assets relative to your debts.

You should therefore consider insolvency when you can no longer keep up with all your payments, are facing several foreclosures at once or are at risk of losing the roof over your head.

Insolvency in the Czech Republic is governed by the Insolvency Act, which sets out the exact conditions of bankruptcy and the course of insolvency.

What conditions need to be met

A natural person (an ordinary citizen), a self-employed person if his/her debts do not come exclusively from his/her business, or a legal person (a company) can file for insolvency if the creditors agree.

If you want to take advantage of debt relief, you must meet other conditions:

• be able to repay at least part of your debts within 3-5 years,
• provide proof of sufficient income (salary, pension, annuity) or have a gift agreement from a third party to help you pay,
• provide proof of all income and liabilities.

If you do not meet these conditions, the court may order bankruptcy instead of insolvency, which is a less favourable option for individuals.

How an insolvency application works

The insolvency petition is the main document without which the insolvency process will not proceed at all. It is through this petition that you ask the court to formally decide on your bankruptcy and at the same time grant you debt relief. From a legal point of view, the petition must be very carefully drafted, because the slightest mistake can lead to its rejection and thus to a prolongation of the whole situation where you are still facing foreclosures or pressure from creditors.

All the basic personal information – name, date of birth, birth number and permanent address – must be included in the proposal. This information serves to clearly identify the debtor and without it the court would not be able to consider the application at all.

The most important part is the list of liabilities. This is where you must list all your creditors, i.e. banks, non-banking companies, telephone operators and private individuals to whom you owe money. For each liability, the amount of the debt and the due date must be clearly stated. If you omit any creditor, not only could the court reject your application, but it could also be seen as an attempt to conceal the facts.

Another mandatory part is a list of assets. This includes everything you own, from real estate to a car to valuables, bank accounts or debts owed to others. While it may seem tempting to “forget” something, in practice it is very risky. The insolvency practitioner examines your assets in detail and if you conceal any assets, you may only face having your insolvency annulled.

The court is also interested in your income and expenses. You will therefore need to provide evidence of regular sources of finance, such as a contract of employment, payslips, pension or other recurring income. It is also necessary to include evidence of expenses so that the court can realistically assess whether you are able to repay at least part of your debts.

The petition must also include a proposal for a method of repayment. As a rule, this is either a repayment plan, where the debtor repays his or her debts in regular monthly instalments over a period of three to five years, or a property realisation, i.e. selling the property and using the proceeds to pay the debts. A combination of both options is often chosen.

In practice, we often see people filing for insolvency on their own and making fundamental mistakes – typically forgetting to list all creditors or failing to declare income. More than one petition has been rejected by the court simply because of formal deficiencies. Such a mistake can delay the whole process for several months, while the foreclosure process continues.

Therefore, consider entrusting the insolvency petition in the hands of a professional who will ensure that the document contains all mandatory elements and meets the strict requirements of the law. We will be happy to help you with this.

If someone other than the debtor is drafting the petition for the debtor, it can only be a solicitor, notary, bailiff, insolvency practitioner or accredited non-profit organisation.

Where and how to file an insolvency petition

The filing of an insolvency petition has precise rules that must be followed, otherwise the whole process can become unnecessarily complicated. The petition is always filed with the regional court that has jurisdiction over your place of residence. For example, if you live in Brno, you should apply to the Regional Court in Brno, if you live in Ostrava, you should apply to the Regional Court there, and so on. The correct choice of court is important because if you send the petition elsewhere, the court will not be able to hear it and the case will be unnecessarily delayed.

The filing itself can be done in several ways. The most traditional way is to serve the petition in person at the registry of the relevant court. In this case, you can be sure that the document has actually been received and you can have it acknowledged.

Another option is to send the application by post as a registered letter – here too it is a good idea to have a proof of posting so that you can prove when and where you filed the application. A modern and convenient option is to use a data mailbox, which is fully accepted in insolvency proceedings. Electronic filing has the advantage of speed and reliability of delivery; the court receives the petition almost immediately.

It costs you nothing to file the petition with the court.

Do you want to have the assurance of correctness and legal backing? We are happy to help you with filing the motion and communicating with the court.

How the insolvency procedure works step by step

The entire procedure has several stages:

1. Filing the petition – the court will assess whether you meet the legal requirements.
2. Opening of proceedings – from this point on you are protected from creditors (suspension of executions).
3. Bankruptcy decision – the court finds that you are bankrupt.
4. Approval of insolvency – the court chooses the method of insolvency (repayment plan or realisation of assets).
5. Insolvency procedure – the debtor fulfils the obligations according to the approved plan, the insolvency administrator distributes the payments to the creditors.

How long insolvency lasts: usually 3 to 5 years, depending on the amount to be repaid. If the debtor repays at least 60% of the debts within 3 years, the court can end the insolvency earlier.

How long does it take to process an insolvency: From the filing of the petition to the court’s decision is usually several weeks to months, depending on the court’s caseload and the quality of the petition.

When to use a gift agreement in insolvency

Not every debtor has sufficient income to qualify for bankruptcy. In this case, a gift agreement is the solution. This is a document in which a third party (for example, a relative) promises to make a regular financial gift in instalments. It allows the court to approve debt relief even for a debtor with a low income. But beware, if the donor stops complying, the arrangement can be revoked.

We recommend that you draw up a gift agreement with the help of a lawyer so that it is valid and accepted by the court.

Summary

You can apply for insolvency if you have multiple creditors, debts more than 30 days overdue and you are unable to continue to pay them, or if you are over-indebted. An insolvency petition is a document that is filed with the competent regional court of your place of residence, in which you must provide your personal details, a complete list of all creditors and debts, a list of assets and proof of income and expenses. Any debtor can file the petition themselves, but if someone else prepares it for you, it must be a lawyer, notary, insolvency administrator, executor or accredited non-profit organisation. The actual filing of the petition is free of charge and can be delivered in person, by mail or electronically via a data box. If the court accepts the petition, the proceedings are opened and the debtor is protected from creditors. This is followed by a bankruptcy decision, approval of the insolvency arrangement and the repayment itself – either through a repayment plan or by monetising the assets. The whole insolvency process usually takes three to five years, in some cases it can be ended after three years if at least 60% of the debts are repaid. People on low incomes can use a gift agreement, where a third party helps them to pay.