Financial literacy is still quite low among many citizens. However, sometimes situations arise where even a relatively educated person in this area gets into debt and is no longer able to repay. Business also carries great risks, and sometimes a person ends up with nothing left but insolvency. Read on to find out how insolvency works, how the insolvency procedure works and what you can expect in the insolvency court.
Insolvency is a legal condition where the debtor is no longer able to pay its obligations to its creditors. Both natural persons and legal entities can be in financial distress and unable to repay their debts. In such a case, the simplest step is to initiate insolvency proceedings.
Insolvency, often also called bankruptcy, is when a person or legal entity becomes indebted when it is no longer able to meet its financial obligations on time and in full. The Insolvency Act defines insolvency in two main ways: insolvency and over-indebtedness. Insolvency occurs when a debtor is unable to repay its debts for more than three months after they are due. Over-indebtedness is a situation where the debtor’s liabilities exceed his assets. This happens more often with legal persons and entrepreneurs.
The Insolvency Act then specifies that bankruptcy can be resolved in three basic ways: bankruptcy, reorganisation and insolvency. Each of these methods has its own specifics that affect the debtor in different ways.
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Getting into debt is sometimes much easier than it might seem. All you have to do is enter into one unfavourable contract and you’ll find yourself in a cycle of financial distress. So don’t look at your situation as an embarrassment to be kept quiet about and deal with it early. The sooner you start insolvency proceedings, the easier it will be for you to resolve the situation. Similarly, don’t delay if you are waiting for a sale payment to arrive in your account but the due date has already passed. In this case, the debtor may be on the other side and you would not be able to wait. In either case, we will provide you with legal representation and help you resolve the debt.
In insolvency proceedings, people can “get rid” of their debts. This is a legal process that allows bankruptcy to be resolved through the courts. In this case, the insolvency court is there to ensure that creditors get at least some of their money back, while giving the debtor a chance to start with a clean slate.
If you need to resolve your debts and insolvency is the only possible solution for you, then you need to file an insolvency petition. As this petition can also be filed by creditors, it is better not to delay and file it as soon as you are fully aware of your situation regarding your inability to pay. The insolvency petition must contain all the necessary information about you, your assets, debts and creditors so that the court can make a decision based on complete information.
At the same time as filing the insolvency petition, you can apply for debt relief. If you are not sure how to fill in the documents and the specific procedure, please contact our law firm. We can help you sort out all the details and make sure you get the most out of the process.
Once the insolvency petition has been filed, the insolvency court comes into play. It assesses whether the debtor is actually insolvent. If it decides that this is indeed the case, the insolvency court issues a bankruptcy decision. This means that you, as the debtor, are officially recognised as unable to pay and can proceed to some form of insolvency resolution.
The bankruptcy decision of any person is always published in the insolvency register. This publicly accessible database includes all information about pending insolvency proceedings. Thus, more or less anyone can access the debtor’s financial situation, which has a considerable impact on the credit and credibility of the individual and the legal entity, not only with future business partners or creditors. So if you are entering into an important transaction, do not be afraid to consult the register and make sure that the counterparty does not owe enough to affect you.
Once the court decides that you are truly unable to pay and you are officially insolvent, one of the three main forms of bankruptcy resolution awaits you.
In the case of bankruptcy , you will face a complete liquidation of your assets. In other words, you will lose all your assets, which will be sold. The proceeds will be distributed to your creditors to pay off at least some of your debts. Bankruptcy most often takes place in companies that cannot be reorganised.
It is reorganisation that allows the debtor to continue its business. However, if you want to use this form, it has one condition: You must comply with a reorganization plan that is approved by the court and creditors. Such a plan usually includes a restructuring of debts and a change in the management of the company in question. Restructuring can be used by companies that are likely to recover from debt and be able to continue operating if they make certain changes to their management or financing.
Individuals are most often involved in debt restructuring, often called personal bankruptcy. With bankruptcy, you will be able to repay your debts to creditors partially or gradually. The repayment period is usually five years, and the rest of your debts can be forgiven. The aim of bankruptcy is for the debtor to get a second chance without losing all their assets. However, only those who can prove that they are able to repay at least part of their debts can take advantage of this debt relief.
To avoid insolvency, plan early and manage the flow of personal and business finances carefully. If you are already in debt, check regularly that all payments are going out as they should and actively seek solutions at the first sign of financial problems.
Insolvency proceedings are opened when the court decides that you are insolvent. An insolvency practitioner, appointed by the court to manage the debtor’s assets and order the highest possible satisfaction of creditors, plays a key role in the process. The insolvency trustee therefore has control of all the assets of the debtor, ensures their valuation and then takes care of any sale or other means of monetisation of the affected assets.
As regards the debtor’s obligations in insolvency proceedings, the debtor must cooperate fully with the insolvency administrator. He must provide the insolvency practitioner with all necessary documents and information that affect the course of the proceedings. At the same time, he must not dispose of his property. Again, this is usually arranged by the insolvency court in order to prevent further deterioration of the financial situation and the position of creditors.
As a debtor, you have the right to demand fair and reasonable treatment throughout the insolvency process. If you feel that your right to be protected from unjustified creditor claims or your right to a fair judgment based on evidence has been violated, you can take legal action.
Once insolvency proceedings have run their course, different situations arise depending on which form of insolvency resolution has been used in a particular case. If the insolvency is successful, the debtor’s remaining debts may be forgiven and the debtor starts afresh without a debt burden. However, the law excludes some debts from debt relief. For example, if you owe child support or fines, you must continue to pay your debts after the insolvency is over.
Insolvency deals fairly with the situation of a debtor in bankruptcy, whether it is an individual or a legal entity. If you find yourself unable to repay, do not delay and file for insolvency proceedings. The insolvency court will then decide whether this is justified. The debtor can then face bankruptcy, reorganisation or personal bankruptcy. Throughout the proceedings, the debtor is under the supervision of the insolvency practitioner and may not dispose of his or her assets on his or her own.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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