Debts, foreclosures and the constant stress of money can put a person in a hopeless situation. Personal bankruptcy, or debt relief, is a legal way to get rid of debt and start afresh with a clean slate. In this article, you’ll learn what the terms of personal bankruptcy are, how the process works step by step, and how to easily check if you qualify for bankruptcy using an insolvency calculator.
Personal bankruptcy is the popular name for debt relief under the Insolvency Act. It is not an “escape from debt”, but a legal process in which the debtor pays back what he or she can objectively manage for a certain period of time and, once the legal conditions are met, the court forgives the rest of the debts.
Insolvency proceedings have clear rules and are supervised by the court and the insolvency administrator. Even before the insolvency proceedings are opened, foreclosures are stopped and creditors can no longer recover debts independently. For many people, this is the only realistic way to get out of the debt spiral and to function normally again.
Personal bankruptcy is primarily for people who have multiple debts with different creditors and are unable to repay them in the long term. Typically, this is a situation where debts are accumulating, penalties, interest and foreclosures are mounting and normal repayment is no longer realistic.
But debt relief is not an automatic solution for everyone. It makes sense if the debtor wants to deal with their situation honestly, cooperate with the court and accept the fact that they will live in a limited financial regime for a certain period of time. That’s why it’s a good idea to check before filing whether personal bankruptcy makes sense and whether you can actually qualify for it.
Are you unsure about filing an insolvency petition and afraid of mistakes that could lead to its rejection? We can help you write and file a personal bankruptcy petition from start to finish. We will assess your situation, check that you meet the conditions for bankruptcy, set up your income correctly, including any gift agreement, and prepare a proposal that will stand up in court.
The conditions for personal bankruptcy are set out in the Insolvency Act and are assessed by the court. The basic prerequisite is the existence of bankruptcy or imminent bankruptcy. This means that you have multiple creditors and are unable to pay your debts properly and in the long term. It is not enough to have one debt or a short-term loss of income. The court looks at whether your insolvency is genuine and long-term.
Another key requirement is what is known as honest intent. The court looks at whether you are trying to abuse personal bankruptcy. If it turns out that you have been building up debts on purpose, increasing them shortly before insolvency or transferring assets to other people, the petition may be dismissed. Honest intent is very important in practice and getting it wrong is one of the most common reasons for failure.
Equally important is the question of income. Today, the law no longer sets a fixed percentage that you must repay to creditors, but the court assesses whether you are able to make at least the minimum repayments and cover the costs of the insolvency proceedings and that the insolvency makes economic sense. Income can come from a job, a business, a pension or a combination of sources. In some cases, a gift agreement can also help.
A gift agreement can help in personal bankruptcy because it increases or stabilizes the debtor’s income, thereby increasing the chances that the court will even allow the bankruptcy.
While there is no longer a fixed percentage that the debtor must repay to creditors in insolvency proceedings, the court always looks at whether the debtor is able to make at least the minimum repayments on a regular basis, as well as pay the insolvency practitioner’s costs. If a person has a low or irregular income, it may be that the income from employment, business or pension alone will not be sufficient for the court. This is where a gift deed comes in.
If you are not sure whether you meet all the conditions of personal bankruptcy, it is wise to start with an indicative calculation. An insolvency calculator can quickly give you an indication of whether you have a chance of getting a bankruptcy discharge or whether you need to look for another solution based on basic information.
A gift agreement in insolvency usually means that a third party – usually a partner, parent or other close relative – agrees to contribute a certain amount to the debtor on a regular basis during the period of the insolvency. This donation is counted as income and is taken into account by the court when assessing whether the insolvency is realistic. The gift enables the debtor to meet the minimum repayment requirement even if his own income is not sufficient.
Importantly, the gift agreement must be realistic and sustainable in the long term. The court assesses not only the amount of the gift but also whether the donor is able to actually provide the promised sums. A formal or unrealistic donation that is not covered by the donor’s real possibilities can be assessed negatively by the court and the proposal for insolvency rejected.
This is why getting the gift agreement right is so crucial. It must be clearly worded, time-bound and fit logically into the debtor’s overall income picture. A mistake in this part of the proposal can lead to the conclusion that the debtor does not meet the conditions for personal bankruptcy, and the whole process will be unnecessarily complicated or blocked altogether. We will be happy to help you prepare it.
The insolvency calculator is a handy tool that allows you to find out in minutes whether personal bankruptcy is an option. Just enter information about your income, debts and family situation and the calculator will give you an indication of what personal bankruptcy might look like.
While the result is not a substitute for a legal assessment, it will give you an important first picture. For many people, this is the first step to stop worrying and start actively addressing their situation. The big advantage is that the whole process is online and completely discreet.
The personal bankruptcy process itself begins with the filing of an insolvency petition together with a proposal for the authorisation of debt relief. This document must contain precise information about the debtor, all liabilities, creditors, income and assets. Once the petition is filed with the insolvency court, theinsolvency proceedings are opened. Already at this stage, there is a major change – foreclosures are stopped and creditors can no longer collect debts independently.
The court then reviews the petition. If it finds that the statutory conditions are met and the petition is free of errors, it decides on insolvency and authorises debt relief. At the same time, it appoints an insolvency administrator to supervise the debtor’s compliance with its obligations throughout the proceedings. The trustee controls the income, distributes payments to creditors and communicates with the court.
Tip: Insolvency is the only way out of the debt trap for many people. Entering it means admitting your inability to pay your debts and embarking on a journey of several years, at the end of which a chance for a fresh start awaits. But do you know how insolvency is ended and what follows? Find out in our article.
The next stage is the actual debt settlement, which usually takes several years. During this time, the debtor makes payments from his or her income at the statutory rate. He or she is obliged to work or actively look for work, report changes in income and behave responsibly. If he or she fulfils all the obligations properly, the court may decide to discharge the rest of the debts after the end of the arrangement. This is the key moment for debtors – it means a real fresh start without old debts.
Insolvency proceedings are formally demanding and mistakes in the petition can have fatal consequences. A rejected petition means lost time, money and often further aggravation. An attorney can help you properly evaluate the terms of your personal bankruptcy, prepare an error-free petition, and guide you through the entire process. For more complex cases, such as a business or a combination of multiple incomes, professional help is almost essential. Email us about your debt problem and we’ll take care of the rest.
Personal bankruptcy, professionally known as debt relief, is a legal process under the Insolvency Act that allows people in a difficult financial situation to get rid of their debts and start afresh, repaying only what they can objectively manage during the period of debt relief and having the court discharge the rest of their debts once the conditions are met. It is designed in particular for people with multiple debts with different creditors who are unable to repay their debts in the long term, with the court always assessing the existence of bankruptcy, the debtor’s honest intention and his or her ability to make at least the minimum repayments and the costs of the insolvency proceedings. Income can come from a variety of sources, such as employment, business or pensions, and in the case of low or irregular income, a properly set up gift agreement can help to increase the income and thus the chances of being granted insolvency. The personal bankruptcy process begins with the filing of an insolvency petition, after which foreclosures are stopped, the court reviews the petition, authorises debt relief if necessary, and appoints an insolvency trustee who oversees repayment for several years; if the debtor fulfils his or her obligations properly, he or she may be discharged from the rest of the debts at the end of the proceedings. Before starting the process, it is possible to check the chances of debt relief using an online insolvency calculator, and due to the formalities involved and the risk of mistakes, in most cases it is worthwhile to deal with a personal bankruptcy attorney who will ensure that the proposal is set up correctly and guide the debtor through the process.
Personal bankruptcy, or debt relief, is a judicial process under the Insolvency Act that allows a debtor to repay his debts only to the extent of his realistic possibilities. Unlike regular debt repayment or foreclosure, the entire process is managed by the court and the insolvency administrator, and once certain conditions are met, the rest of the debts can be forgiven.
The basic conditions for personal bankruptcy are the existence of bankruptcy or threatened bankruptcy, i.e. multiple debts with different creditors and the inability to repay them in the long term, as well as the debtor’s honest intention and the ability to pay at least the minimum repayments and costs of the insolvency proceedings. These conditions are always assessed by the insolvency court.
Yes, once the insolvency proceedings are opened, the enforcement proceedings are stopped and the creditors can no longer enforce their claims independently. The debts are subsequently dealt with exclusively in the insolvency proceedings according to the rules laid down by law.
A low or irregular income does not automatically rule out personal bankruptcy. The court assesses the debtor’s overall ability to repay and in some cases income can be supplemented, for example, by a gift agreement from a close person. What is important is that the income is real, long-term and sufficient to cover the minimum repayments and the costs of the proceedings.
Yes, much of the personal bankruptcy process can now be handled online. Documents can be prepared remotely and communication with the attorney and the court can be done electronically. Nevertheless, it is important that the insolvency petition is prepared correctly, as formal errors can lead to its rejection.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
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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