New Law on Bankruptcy of Natural Persons in Bulgaria: Citizens Without Property Must Wait 6 Years to Have Debts Eased

Only people who owe more than 10 minimum wages will be eligible to file for bankruptcy and have part of their debt forgiven. This provides for an entirely new law on bankruptcy of natural persons, which was adopted in the first reading by the legal committee of the National Assembly (NA). With the current minimum wage of BGN 780, this means that the debt must be over BGN 7,800.

The adoption of the law is part of our country’s commitments under the Recovery and Sustainability Plan, so the parliament will have to adopt it in order to request the next tranche of the money. But a large part of the debtors in the country will not be able to take advantage of the law, “Trud” specifies.

The draft law was submitted to parliament by the caretaker government. The law will not apply to people with small debts, nor will it apply to people with free professions, craftsmen or those who exercise commercial activity.

In addition, bankruptcy procedures are similar to those of a commercial company, which means a fairly lengthy process involving lawyers. The project was supported by the deputies in the first reading, but there were criticisms that the procedures were too cumbersome and complicated.

In order for a person to ask the court to be declared bankrupt, he must be in good faith, the draft stipulates. This means fulfilling a number of conditions, including having worked in the last one year before filing for bankruptcy, unless there are health or other valid reasons for not working.

And most often precisely as a result of the fact that people remain unemployed, cannot pay their debts and may end up bankrupt. Another such condition is that in the last five years he has not given money for goods and services that do not satisfy his or his family’s needs, and which are not consistent with the amount of his income.

The court will have to assess whether the purchase of a phone for BGN 1,000 or a one-week holiday in Greece is a satisfaction of the family’s needs or an unnecessary luxury for an unscrupulous debtor.

If a person files for bankruptcy and the court approves it, a fairly lengthy process will begin to sell off their assets in an attempt to pay off their debts, the law says.

In order to start the procedure, the debtor must have assets sufficient to pay off at least 30% of his debts, as well as pay a receiver. After that, at least three years must pass in which the trustee sells off his property, and only after that, if any debts remain, will they be forgiven.

If a person does not have enough assets to pay at least 30% of their debts, the procedure is much slower. First, the debtor will have to wait a year before the court closes the bankruptcy proceedings.

Because during this period he can acquire some property. After that, the debtor must wait another five years, and only after that, if there are still outstanding debts, they will be forgiven.

Tests from the draft law

It is not considered a bona fide debtor who:

1. has been convicted of breach of trust, a crime against creditors or a crime against the financial, tax or insurance systems, unless he has been rehabilitated;

2. is able to work, but in the last year before submitting the application for the opening of bankruptcy proceedings, he did not exercise labor or any other activity that would be a source of income, regardless of the method of its assignment and execution, without valid reasons;

3. in the last 5 years prior to the submission of the application for the initiation of bankruptcy proceedings, he has committed a violation of the obligation to declare income or property;

4. has disposed of his property of significant value free of charge in the last 5 years before filing the application for opening bankruptcy proceedings;

5. in the last 5 years prior to the submission of the application for the opening of bankruptcy proceedings, he assumed an obligation under a loan agreement, a contract for the purchase of goods and services or another remunerative contract that was not intended to satisfy himself or his family members, which he supports, basic life needs and when this obligation is clearly inconsistent with his property and income;

6. has presented false or incomplete data, documents or evidence about his property to the court or receiver in connection with bankruptcy proceedings;

7. has intentionally obstructed the exercise of the powers of the court and the receiver regarding the inspection of his property, the preservation and replenishment of the bankruptcy estate;

8. has not fulfilled obligations provided for in this law, in an approved repayment plan or in an out-of-court agreement with creditors, by which he has created a danger for the interests of creditors.

Position of the ombudsman Diana Kovacheva: It should also apply to electricity and water bills

The costs are too high

The law should also be applied to small obligations for electricity, water and heating, believes the ombudsman Diana Kovacheva

The law on the personal bankruptcy of citizens should also be applied to people with free professions, for smaller obligations, as well as for obligations secured by mortgages, according to the opinion of the ombudsman Diana Kovacheva. The restriction that the law does not apply to obligations below 10 minimum wages excludes in most cases citizens with unpaid household obligations for electricity, water and heating, the ombudsman points out.

Prof. Diana Kovacheva emphasizes that it is important to pay attention to the amount of expenses that the debtor must bear. In relation to the receiver only, the sums to be paid by the debtor are: one minimum wage for doing each of the following:

1. drawing up a list of accepted receivables;

2. carrying out an inventory of the property and establishing the bankruptcy estate;

3. preparation of a plan for repaying the obligations;

4. drawing up a distribution account.

In addition, the receiver will take 5% of the property sold, as well as an additional annual fee of one minimum wage. If it is a question of a liability of BGN 7,800, then only the costs of the trustee, without the additional 5% of the property sold, will be half of the amount of the liabilities to the creditors.

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