Debt relief, personal bankruptcy (oddlužení)
A way of resolving the bankruptcy of an individual under § 389 et seq. of Act No. 182/2006 Coll., the Insolvency Act, popularly called “personal bankruptcy”. During debt relief the debtor pays creditors instalments from income, or the debtor's assets are realised. After proper completion, the court grants a discharge from the remaining unsecured debts. The bank's lien does not cease through debt relief.
Example
A debtor has a mortgage with CZK 3,543,000 outstanding (originally CZK 4,000,000 at 5.00 %) plus CZK 900,000 in consumer loans. In debt relief with a repayment schedule, the bank as a secured creditor insists either on selling the flat or on regular mortgage payments. Unsecured creditors receive only part; the court forgives the rest of their claims once debt relief is completed.
In practice
The petition must be drawn up by an attorney, notary, bailiff, insolvency administrator or accredited organisation, and it needs a complete list of liabilities. Anyone who wants to keep a pledged home has to reach an agreement with the bank and keep paying the mortgage. After completion the data stay in the insolvency register and credit registers, so a new mortgage is usually realistic only after several years of clean history.
How it differs
Debt relief is one way of resolving insolvency, the general state of bankruptcy and the proceedings on it, and it is available mainly to consumers. Unlike enforcement (exekuce), it does more than recover debts: at the end it forgives the rest of the unsecured ones.
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