Personal bankruptcy is a formal legal procedure that allows an individual to resolve his or her financial problems if he or she does not have the means to repay debts or if repaying them would be an undue burden on him or her.
In many countries, it is a procedure that protects the debtor from undue pressure from creditors and allows him or her to make a fresh start.
Let’s look at the basics, the process and the consequences of personal bankruptcy.
Basic concepts in personal bankruptcy
On the topic of personal bankruptcy, it is important to understand the basic terms that are often used in this area.
Below is an overview and brief description of the most common terms associated with personal bankruptcy:
- Personal bankruptcy: is the legal status of a person who is unable to pay his debts and who files for bankruptcy in order to solve his financial problems.
- Debtor: a person who has financial obligations and who is responsible for repaying debts.
- Creditor: the person or organisation to whom the debtor owes money.
- Bankruptcy: a formal process in which a debtor’s assets are sold to satisfy creditors’ claims.
This means losing (usually) all assets (if any).
- Repayment schedule: the debtor retains the assets but repays his debts according to a set repayment schedule.
- Insolvency administrator (insolvency practitioner): the person or organisation appointed to manage the insolvency process, including the sale of the debtor’s assets and the distribution of the proceeds to creditors.
- Restructuring: is the process of rearranging the debts and liabilities of a debtor to enable it to repay its debts on modified terms.
- Debt relief: is a process whereby some or all of a debtor’s debts are forgiven when certain conditions are met.
- Liabilities: the total debts and liabilities that the debtor has.
- Assets: all values and assets that the debtor owns and that can be used to repay debts.
- Secured creditor: a creditor to whom the debtor owes money and who has security (e.g. real estate) in case the debtor defaults.
- Unsecured creditor: a creditor who has no specific security for a debt held by the debtor.
- Moratorium: is a temporary period of cessation or postponement.
In the context of finance and personal bankruptcy and law, the term is most commonly used to refer to a period during which certain activities are temporarily suspended, especially in relation to debt repayment.
A moratorium may be established by legislation or by agreements between the parties involved.
- Liquidation: the process of selling a debtor’s assets to repay debts.
These terms may have slightly different definitions or nuances in different jurisdictions, so it is important to consult a professional or lawyer in the relevant field before making any decisions regarding personal bankruptcy.
Reasons for declaring personal bankruptcy
Declaring personal bankruptcy is a serious decision that has long-term consequences.
Personal bankruptcy is often seen as a last resort for individuals who find themselves in a difficult financial situation.
Although the reasons may vary depending on individual circumstances, there are several common reasons why people declare personal bankruptcy:
- Excessive debt: many people get into financial trouble because of excessive loans that they are unable to repay.
- Medical expenses: unexpected health problems and related expenses can lead to financial problems.
- Loss of employment: loss of income due to unemployment can quickly lead to an inability to repay debts (mortgage, loans, leases, etc.).
- Divorce: the end of a marriage can bring significant financial burdens due to legal costs, division of property or maintenance obligations.
- Business Failure (CSR): small business owners whose business fails may face large debts they cannot repay.
- Lack of financial literacy: failure to manage personal finances properly can lead to poor decisions and increased debt.
- Accidents or unforeseen events: natural disasters or accidents that cause property damage can cause significant financial hardship.
- Addiction: problems with drugs, alcohol or gambling can lead to excessive spending and financial instability.
Declaring personal bankruptcy should be the last resort after all other options have been explored.
It makes sense to consult with a financial advisor or a lawyer specializing in bankruptcies to assess all the options and consequences of such a move.
How personal bankruptcy works
The process of personal bankruptcy usually goes as follows:
- Pre-bankruptcy counselling: financial counselling is required before declaring bankruptcy.
The aim is to provide the individual with information about bankruptcy and possible alternatives.
- Filing for bankruptcy: the person wishing to declare bankruptcy files an application for bankruptcy with the competent court.
The application is often accompanied by documents relating to income, debts, assets and other financial information.
- Bankruptcy trustee: after the filing of the petition, a bankruptcy trustee is often appointed to oversee the entire bankruptcy process and is tasked with managing the debtor’s assets, satisfying creditors’ claims, and performing other acts prescribed by law.
- Suspension of foreclosures and claims: in most cases, bankruptcy provides some protection from creditors, which means that creditors cannot pursue foreclosures or other legal proceedings against the debtor when bankruptcy is declared.
- Sale of assets: the debtor’s assets can be sold to satisfy creditors’ claims.
There are some exceptions where certain assets (e.g. basic housing, basic household appliances) are not included in the sale.
- Satisfaction of creditors: the proceeds from the sale of the debtor’s assets are used to satisfy creditors’ claims in the order provided for by law.
- Debt cancellation: after the bankruptcy process is completed, the remaining uncovered debts are usually wiped out.
However, there are exceptions; some types of debts cannot be excluded from cancellation, such as fines, child support or student loans.
- Completion of bankruptcy and consequences: once the bankruptcy process is completed, a person can be formally declared “free” of his or her debts.
However, declaring bankruptcy can have long-term negative consequences for credit history and the ability to obtain loans in the future.
Personal bankruptcy laws
In Slovakia, personal bankruptcy is mainly mentioned in Act No. and subsequent amendments.
This Act lays down the rules for bankruptcy and restructuring proceedings in Slovakia, including bankruptcy proceedings concerning natural persons – non-business persons, i.e. personal bankruptcy.
Does personal bankruptcy also apply to entrepreneurs?
Yes, personal bankruptcy can also apply to entrepreneurs.
In Slovakia, a natural person – an entrepreneur (i.e. a sole trader or self-employed self-employed person) can, in the event of bankruptcy, file a petition for a bankruptcy discharge, i.e. apply for a so-called “bankruptcy bankruptcy”. personal bankruptcy.
Debt relief for natural persons – entrepreneurs is more complex and may have more significant consequences for their business activities.
Therefore, in such cases it is even more important to consult a specialist or attorney specializing in insolvency law.
Frequently asked questions about personal bankruptcy
Frequently asked questions about personal bankruptcy:
What is personal bankruptcy?
Personal bankruptcy, also called personal bankruptcy, is a legal process by which a debtor discharges his or her debts.
The debtor files for bankruptcy with the court and the court reviews his or her financial situation.
If the court finds that the debtor is unable to repay his debts, it declares him bankrupt.
Who can apply for personal bankruptcy?
Any natural person who is unable to repay his/her debts can apply for personal bankruptcy.
This means that the debtor must have a number of debts that he or she cannot repay on time and in full.
The debts must be provable, i.e. they must be supported by invoices, contracts or other documents.
What are the conditions for declaring personal bankruptcy?
To declare personal bankruptcy, the debtor must meet the following conditions:
- He must have several debts.
- He must be unable to repay his debts on time and in full.
- Debts must be provable.
- The debtor must not have an enforcement proceeding pending in court on a claim that is included in the bankruptcy estate.
- The debtor must not have been approved for bankruptcy in the previous 10 years.
What are the consequences of personal bankruptcy?
The consequences of personal bankruptcy are as follows:
- The debtor’s debts are forgiven.
This means that the debtor is no longer obliged to repay them.
- The debtor is prohibited from transferring property.
The debtor may not transfer his property to other persons without the consent of the bankruptcy trustee.
- The debtor is prohibited from entering into new commitments.
The debtor may not enter into new contracts which would give rise to new debts without the consent of the insolvency administrator.
- The debtor is entered in the Register of defaulters.
This may have a negative impact on his credit history.
- Bankruptcy proceedings can take up to 3 years.
During this period, the debtor is obliged to cooperate with the insolvency administrator and provide him with all necessary information.
Which famous celebrities have used personal bankruptcy?
Several well-known celebrities have used personal bankruptcy, whether because of bad business decisions, uncontrolled spending, lawsuits or other reasons.
Some of these celebrities who are media famous and have presented themselves by availing personal bankruptcy are:
- Mike Tyson: a former professional boxer who in the 90.
The former boxer, who earned hundreds of millions of dollars, filed for bankruptcy in 2003, when he had debts of around $23 million.
- Kim Basinger: The American actress filed for bankruptcy in 1993 after breaking her contract and reneging on a verbal agreement to appear in the film “Boxing Helena”.
- MC Hammer: rapper who in the 90.
In 1996, Hammer, who had acquired a huge fortune in the 90s, filed for bankruptcy with debts of approximately $13 million.
- Gary Coleman: the actor from the “Diff’rent Strokes” series filed for bankruptcy in 1999 after a series of financial and legal problems.
- Nicolas Cage: although he didn’t go through formal bankruptcy, he was known for his financial problems.
