What is the position of creditors in Czech law? How are they protected against possible efforts of the debtor to harm them? And how is their position enshrined in insolvency proceedings and the Criminal Code? This is what we have decided to address in a mini-series of three articles. In the first of them, we take a look at the basic concepts on this topic.
The general definition tells us that a creditor is a person against whom the debtor has a claim which he has undertaken to pay according to the terms agreed in advance in the contract.
Under this interpretation, we can easily imagine a situation where a neighbour lends us twenty thousand, a bank gives us a two-million-dollar mortgage to buy a flat, or a business partner has delivered goods, issued an invoice and is waiting to be paid. In all of these situations, we have described what a creditor might look like in practice.
A creditor can be a natural or legal person who has the right to demand performance from us as the debtor. The basis is usually a contractual legal relationship, such as a loan agreement, credit agreement, etc. The debtor is obliged to pay the debt. If he fails to do so, the creditor has the right to enforce his claim in court.
Are you trying in vain to recover your debt?
In the case of debt collection by the creditor itself, many debtors, for example, play on existing good (family, friend or business) relationships and believe that they will get away with endlessly repeating their promise to pay. The moment you start communicating with the debtor through a law firm, the helpfulness of the debtor will increase manifold, as will the speed of resolving their obligation. Often there may not even be any court proceedings.
The position of debtors and creditors is typically discussed in the context of foreclosure and insolvency. These terms are often used interchangeably, both focusing on the recovery of debts, but expressing quite different situations.
Enforcement focuses on the enforcement of a court order. It is most often about paying a debt, but it can also be about eviction, an apology or anything else. Unfortunately, however, some debts are effectively unpayable for the debtor in question and they may spend decades in execution. The foreclosure is used to pay off the entire debt. The application for foreclosure is always filed by the creditor.
In contrast, insolvency is typically a debtor’s move to resolve his extensive debts, even though he does not currently have the means to pay them. The insolvency petition is usually filed by the debtor himself (however, it can also be initiated at the request of the creditor) and after the necessary steps have been taken, insolvency is declared for 3-5 years. During this time, the debtor has to cut back considerably, living only on the minimum necessary. However, after this time he has a chance for a fresh start, even if all his obligations have not been met.
If you are not sure how to resolve your problematic situation, you need to contact an attorney.
Tip: You are in complete control of your financial situation, you are not in debt and if you are, you are paying properly. The insolvency record is therefore something you don’t care about at all. But maybe it should. It is a very practical tool that can be useful to you. Read our article for advice on how to search the insolvency register. You will learn how difficult it is to navigate and what you need to know to search it.
At the same time, the lender is the one who is taking a certain amount of risk and must weigh all the risks when expecting to be paid back, ideally including interest. This means that he must assess the ability of the beneficiary to meet his obligations. The creditor can be a business partner who supplies me with goods, but also an entity that enables the debtor to develop, either personally or in business.
Because of the aforementioned risks that lenders take, we often see lenders requiring certain guarantees or other assurances to help them obtain at least partial compensation if the borrower fails to pay on time.
Asecured creditor is a creditor who has secured his claim by means of an asset or right in the debtor’s property. A typical example is the aforementioned mortgage on real estate. The condition for obtaining a mortgage is the granting of a mortgage over the property. If the debtor is unable to meet his obligations in the long term, the bank may become the owner of the property as a last resort.
Logically, an unsecured creditor is a creditor who does not have his claim secured by one of the above-mentioned forms of security. However, this does not mean that they do not ‘secure’ their obligation in other ways. He can verify the debtor in various ways (in the insolvency register, proof of ownership of real estate, proof of income), another option is to secure the obligation with a guarantor.
The distinction between secured and unsecured creditors is not a mere theory. It is particularly relevant in the context of insolvency and the authorisation of the debtor’s application for debt relief. This is only possible if it appears that the debtor will pay at least 30 % of the unsecured creditors in the arrangement. Otherwise, the application for insolvency would be rejected for lack of assets or income of the debtor and bankruptcy would follow.
Tip: Are you closing an important deal and need to vet your potential business partner well? Or have you already closed the deal, the money isn’t coming in and you want to find out where the catch is? Use the public registers to find out. We can advise you on how to check that the seller is not insolvent.
According to the Insolvency Act, security institutes are:
A common security institution is the contractual lien. The pledge may be not only real estate, but also movable, tangible (automobile) and intangible (trademark) property. It is essential that the pledge can be traded and monetised. The typical use is, of course, through a mortgage.
A lien allows a creditor to retain another’s movable property to satisfy its claim from the proceeds of its sale or other realisation.
This is similar to a lien, it is only used for real estate and is stated on the title deed for the property in question.
This is typically used to secure obligations. Its essence is the transfer of the debtor’s right in favour of the creditor to secure the creditor’s claim. The right transferred must have a property value. It is typically used for leasing contracts and various loans for movable assets.
In an assignment of a claim , there is a change in the creditor’s identity. This is similar to a security assignment, except that the subject of the assignment is the receivable.
At certain times, the insolvency law takes the side of the debtor and allows him to delay his obligations towards creditors to a certain extent. The aim is not, of course, to worsen the debtor’s solvency or to encourage a lax approach to obligations, but rather to give the debtor more time to raise money and meet its obligations.
The debtor may thus apply for a so-called moratorium. This allows him to delay the declaration of bankruptcy for up to 4 months and thus obtain temporary protection. During this period, the right of creditors to actively participate in the resolution of the debtor’s adverse economic situation is effectively postponed. The debtor is thus able to concentrate on its business activities and try to avert its demise.
However, one of the conditions for its declaration is the consent of a majority of creditors, calculated according to the amount of claims. This majority of creditors is also entitled to petition the court to lift the moratorium at any time.
Dostupný advokát team of online lawyers will solve it for you.
Collecting a debt through our service will usually guarantee you a faster, more efficient and significantly cheaper solution. You’ll save yourself weeks or months of pleas and reminders to pay, and usually save on costly court settlements.
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.
Dostupný advokát updated the terms of a contract for our web portal studentino.cz, to insure that they were in strict accordance with the GDPR (General Data Protection Regulation). The entire process was done online and for reasonable price.
I felt very uncomfortable meeting an attorney in person. But Dostupný advokát managed to solve everything for me online. I bought a consultation because my employer had sent me for a long term business trip to an exotic country with no explanation, and I wanted to be sure what my rights in this situation were. (zobrazit více) The Skype consultation was very pleasant and the service was fast. I can fully recommend them.
Fast and professional solutions for most normal legal needs at affordable, preset prices. Seriously, what could be better than that? While it sounds ‘too good to be true,’ I’m happy to report that the staff at DA are pros, and what’s more they are honestly dedicated to their awesome mission, which is to make quality (zobrazit více) Fast and professional solutions for most normal legal needs at affordable, preset prices. Seriously, what could be better than that? While it sounds ‘too good to be true,’ I’m happy to report that the staff at DA are pros, and what’s more they are honestly dedicated to their awesome mission, which is to make quality legal services affordable for the average person. I find their prices very fair when compared to what I’ve usually paid for similar services, which means I (and my family and friends) can get the legal help I need without worrying about some black hole of never-ending fees. In my own experience with DA I’ve found everyone there very responsive, and emails and calls are answered in a timely manner. Their large staff also gives me confidence that any legal needs I have can be handled professionally, as there’s always someone with experience in my particular issue. Their head attorney also writes a regular blog and keeps up with all the latest legal trends, which means they as a business stay up-to-date. As someone who’s spent a fortune over the years on legal assistance, or tried to “go it alone” when I couldn’t afford legal help, I wish Dostupny Advokat had been around a long time ago. I highly encourage anyone who needs legal help to TRY THEM FIRST!
