Moratorium: when you can get a deferment and what it really means

What is a moratorium and what is its meaning in law

The term moratorium comes from Latin and in a general sense refers to the temporary suspension of an obligation, most often the obligation to pay. When talking about the meaning of moratorium in the Czech legal environment, it is important to stress that it is not a “waiver” of debts or a permanent solution to financial problems. A moratorium is always a time-limited institution, the aim of which is to give the debtor space to stabilise his situation without being immediately exposed to harsh sanctions from creditors.

In practice, a moratorium can take several forms. Sometimes it is proclaimed by law, typically in emergency situations where the State is reacting to an economic or social crisis. At other times, it is an individual moratorium, for example in insolvency proceedings, where the court restricts creditors’ ability to collect their claims for a certain period of time. In addition, the term moratorium is often used loosely to refer to a deferral of repayments that a debtor agrees with a bank or other creditor, although legally speaking it is not a moratorium in the strict sense.

It is essential to understand that a moratorium never cancels the debt itself. It does not extinguish the obligation to pay, it merely postpones its fulfilment. This means that, once the moratorium has ended, the debtor has to meet his obligations again, often to an even greater extent, for example because of accrued interest.

What types of moratoria exist and when you may encounter them

A moratorium is not a uniform institution and its specific form varies according to the situation in which it arises. In Czech law, you will most often encounter a statutory moratorium, a moratorium in insolvency and what people commonly refer to as a deferment of payments, i.e. a contractual solution between the debtor and the creditor. Each of these types has a different legal basis and different consequences.

A statutory moratorium is declared by the state and applies to a wide range of people. Its importance lies primarily in the general protection of debtors who have got into difficulties for reasons beyond their control. Typically, these are situations where mass debt recovery would lead to serious social or economic problems. Such a moratorium has a precise duration and conditions and cannot be “negotiated” on an individual basis.

A specific category is a moratorium in insolvency proceedings. Here, the moratorium plays a crucial role in protecting the debtor from creditors in the initial phase of insolvency. For the duration of the moratorium , creditors may not assert their claims, initiate new foreclosures or continue existing ones. The purpose is to create space for the preparation of a resolution of the insolvency, for example in the form of reorganisation or insolvency arrangement.

Most often, however, people encounter the term moratorium in the sense of a suspension of repayments. This is based on an agreement with a bank or other creditor. It is important to note that there is no automatic entitlement to deferment of repayments. The creditor assesses your situation individually and may approve or reject your request. It is at this stage that we recommend that you consult with an attorney who can help you set the terms of the forbearance in a way that is as low risk to you as possible.

Deferment: When it helps and when it can make things worse

For many people,forbearance is the first solution they reach for when they run into financial difficulties. In the short term, it can actually bring relief, as it can temporarily ease the pressure on family or company budgets. However, it is very important to understand that deferment is not free and in some cases can even make your situation worse.

Lenders will usually allow forbearance when the borrower can prove that their problems appear to be temporary. Typical reasons for this could be loss of income, illness or short-term business difficulties. Principal is usually not paid during the grace period, but interest often continues to run or is added to the total debt. This means that when the deferment ends, the resulting amount may be higher than before the deferment began.

From a legal point of view, we recommend paying attention to how the forbearance is contractually set up. Some contracts contain provisions that allow the creditor to demand a one-off top-up after the end of the grace period, while others automatically extend the repayment period. Without professional scrutiny, you may unknowingly commit yourself to terms that will be disadvantageous to you in the long term.

This is why we recommend that you treat deferment as a tool to be used judiciously and ideally in consultation with a professional. An attorney can help you evaluate whether forbearance is really the best solution or whether other legal steps, such as debt restructuring or preparing for insolvency, are in order.

What the moratorium does not address and what risks it entails

One of the most common misconceptions is that a moratorium means the end of debt. In fact, its meaning is exactly the opposite – the debt continues to exist and only postpones its recovery or maturity. This carries a number of risks that every debtor should know before relying on a moratorium or forbearance.

During the moratorium, interest, contractual penalties or other costs may further increase if the legislation or contract allows it. Thus, at the end of the moratorium, the debtor may find himself owing more than at the beginning of the moratorium. At the same time, the creditor may take more drastic action after the grace period has expired, as there will be no further protection.

Another risk is a false sense of security. Some people postpone dealing with their situation during the moratorium on the grounds that they ‘have time’. However, as soon as the protection ends, the problems will return in full force. If the debtor has not taken action in the meantime, for example, by renegotiating terms or filing a bankruptcy petition, he or she may face foreclosure or legal enforcement.

You should therefore view the moratorium as a time period for proactive resolution, not as a definitive answer to debt.

How we can help you

There are situations where a moratorium or deferment of repayments is a relatively simple step, but there are also cases where the situation is already so complex that you risk serious consequences without professional legal help. Typically, these are times when the lender refuses to communicate, foreclosure is imminent, or you are unsure if the proposed forbearance terms are safe for you.

An attorney can help you assess the true meaning of a moratorium in your particular situation, review the terms of the agreement and suggest a course of action. In some cases, preparing a bankruptcy petition or actively negotiating with creditors, for example, may be preferable to forbearance. The aim is not just to delay the problem, but to find a solution that is sustainable in the long term.

At Affordable Advocate, we emphasise clarity, speed and transparent pricing. Everything can be resolved online and without unnecessary delays. If you are unsure whether a moratorium or forbearance is the right way for you, let us assess the situation. Early legal advice can save you not only money but also considerable stress.

Summary

A moratorium is a legal institution whose meaning is the temporary postponement of obligations, most often the obligation to repay debts, while never implying their forgiveness or extinction. In practice, it can be encountered in the form of a statutory moratorium, a moratorium in insolvency or as a contractual solution, which people commonly refer to as deferment of repayments, although there is no automatic entitlement to it and it always depends on the creditor’s will. It is crucial to understand that forbearance only moves the due date while the debt and often interest continues, so that the resulting amount owed may be higher after the moratorium ends. The moratorium is intended to serve as a time to proactively address financial difficulties, not as a final solution, as creditors can reassert their rights once the moratorium ends. This is why in many cases it is advisable to consult with an attorney who can help evaluate the true meaning of the moratorium in a particular situation, review the terms of the forbearance, and suggest further legal steps so that the debtor avoids unnecessary risks and long-term debt deepening.