7 June 2023
Ombudsman Diana Kovacheva has sent an opinion to the Legal Affairs Committee, the European Union Affairs Committee and the Economic Policy and Innovations Committee of the National Assembly regarding the Bankruptcy of Natural Persons Bill in which she once again emphasises the importance for such a law to be adopted as it will give good faith debtors a second chance.
We recall that Bulgaria is the only country in the European Union without an effective law on the so called “personal bankruptcy” while we rank top in terms of bad loans in Europe.
In her opinion, Prof. Kovacheva voices her support as she also points out that, in order to achieve the desired effect, the bill should offer a flexible, transparent and accessible procedure taking into account the possibility to give a second chance to good faith debtors and to ensure payment of at least some of their obligations to satisfy the creditors, albeit partially.
She notes that the citizens’ permanent difficulties and even inability to cover their debts results in social and health problems, to social exclusion and isolation, while the people’s good financial standing is an essential stimulating factor for the economy because the high level of consumption is a prerequisite for stability and economic growth.
She emphasises that first among the goals and principles of the law should be the protection of the rights of good faith natural persons who find themselves in permanent financial difficulties and that a balance should be sought with the rights of creditors so that they may obtain fair satisfaction while, at the same time, the possibility to restore the social and work activity of people in debt is guaranteed.
She adds that the aspect of good faith is one of the most important elements of the law to prevent bad faith debtors from having their debts cancelled and abusing the proceedings.
“As I have already emphasised, it is important to examine a debtor’s behaviour both before and during the proceedings. The consideration of good faith should cover the type and amount of obligations, their origin, the period of non-compliance, the debtor’s behaviour and the debtor’s attempts to pay the obligations,” Prof. Kovacheva is definitive.
She notes that, according to the bill, good faith debtors are those who take on obligations in view of their property situation and income and who do not harm their creditors’ interests through their actions, intentionally or due to negligence.
Diana Kovacheva suggests a change in the scope of the bill. In her opinion, the statutory instrument should also apply to self-employed people and debtors with smaller debts than those provided for and it should also allow for payment in the case of receivables where there collateral is a mortgage.
“The restriction set out with respect to the overall amount of debt which may not be less than 10 minimum work salaries, i.e. currently BGN 7,800, excludes, in most cases, the citizens with household debts for electricity, water, central heating,” the Ombudsman points out.
The Public Advocate disagrees with a provision – not to terminate the proceedings and not to have debts cancelled due to the statute of limitation if the bankruptcy estate has not been exhausted.
“This means that if there is property which has not been cashed out and which is subject to seizure but is unsellable, then the debtor will not be able to benefit from the proceedings even if it is a good faith debtor,” the Ombudsman reasons.
Prof. Diana Kovacheva emphasises also that it is important to consider once again the amount of costs the obligated person will need to cover, including stamp duty; remuneration of the receiver; costs to build, manage, evaluate and distribute the estate; the maintenance set for the debtor and their family.
“Only in relation to the receiver, the amounts the debtor will have to pay are: a lump-sum remuneration of one minimum work salary for the performance of each of the following: 1. drawing up a list of the receivables accepted; 2. making an inventory of the property and establishing the bankruptcy estate; 3. preparing and proposing a plan for the payment of the debtor’s obligations; 4. preparing a distribution account; for each activity of cashing out the bankruptcy estate, the receiver will be entitled to remuneration in the amount of 5 per cent of the value of the property cashed out; an additional annual remuneration is also paid amounting to one minimum work salary upon approval of an annual activity report of the receiver,” the Ombudsman highlights.
She adds that if proceedings are initiated for the smallest overall value of obligations envisaged, namely BGN 7,800, then the costs for the receiver alone, excluding the remuneration of 5% of the value of the property cashed out, will amount to half of the obligations to creditors. Moreover, the remuneration of 5% of the value of the property cashed out is paid upon receipt of the revenues from the property cashed out.