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The Warsaw Voice » Law » August 13, 2008
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Consumer Insolvency in Poland: Problems and Prospects
August 13, 2008   
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Poland's transition to a free market economy has brought in train both the benefits and the drawbacks that this system has to offer. We now live in an acquisitive society in which credit facilities pose a formidable counterweight to the concept of deferred gratification. Those who get the proportions wrong may plunge into consumer insolvency with knock-on effects extending beyond their own personal interests.

Other modern countries have grappled with this issue, and indeed, in Europe, for example, the formalized institution of consumer insolvency is already up and running in Germany, France, Finland, Belgium, Ireland, Spain, Luxembourg, the Netherlands, and Malta. In Poland, the idea of introducing the institution of consumer insolvency was mooted in 2003, when the Bankruptcy and Reorganization Law was being drafted, but it was rejected for two reasons. One reason was the fear that the log jam of such cases would bring the courts to a standstill. The second reason was that Polish consumer debt levels were insufficiently high to make legislation in this field a pressing priority.

The current estimate is that there are about a million households that have been blighted by insolvency and there is no reason why this figure should not rise further. Thus the need for consumer insolvency legislation is gaining in urgency. At the same time, the fears that the courts would become gridlocked with bankruptcy cases have not materialized. So far, three draft proposals have been put forward-by the government, the Civic Platform (PO) and the Law and Justice (PiS) parties. The government's draft proposal, being the most advanced, is the one considered in this article.

The authors of this draft legislation emphasize that the main aim is "to enable debtors to resume normal life." Many of those who find themselves in financial difficulties are not always to blame for their own plight, thus, from the consumer's point of view, a new act in this area is most desirable. In practice, consumer insolvency is the method by which to write off the debts (the so-called debt write-off procedure) of persons who do not carry on business activity. But it must be stated clearly that the idea is to give those who have fallen victim to consumer insolvency a second chance, and not an avenue to escape the consequences of one's own mistakes with the option of making the same mistakes again.

The Polish legislation seeks to take advantage of the experiences gained in foreign countries. These show that the regulation of consumer insolvency, in order to serve its appointed services and at the same time not to endanger the interests of creditors, must meet the following conditions:

  1. Writing off debts has to be the exception, not the rule-the debtor may benefit from this procedure only in exceptional situations and only when s/he is able to guarantee that this will be treated as an opportunity to start the new life and not to recklessly get into debt again;
  2. Debtors should repay their creditors to the maximum of their abilities;
  3. Creditors must have the possibility to defend their rights;
  4. Such insolvency proceedings should be as cheap as possible.

The authors of the government's draft maintain that their proposal fulfills all of these criteria. But their proposal also contains details that account for differences specific to the Polish domain.

Generally, it will be possible to declare insolvency only when the debt amounts to more than 12 officially set minimum monthly wages. Furthermore, the court fee for initiating consumer insolvency proceedings will be zl.200, as opposed to the zl.1,000 for business entities.

Additionally, the new provisions foresee that consumer insolvency will be based on the total liquidation of the debtor's assets. The draft envisages the controversial solution that in order to sufficiently satisfy creditors, the value of the debtor's house or apartment should also be included. The debtor's property should be sold and s/he should be left with an amount of money sufficient to rent a flat for 12 months. Given that in most cases the declaration of consumer insolvency affects creditor claims, such a solution is necessary in order to maximize the degree to which creditors may be satisfied.

Finally, debtors would be able to have themselves declared insolvent once every 10 years. This contrasts with, for example, the German consumer insolvency provisions, which enable consumers to declare insolvency only once. This difference is explained by the fact that under Polish civil law there is a time bar of 10 years for civil claims (art. 118 Civil Code).

The fact that consumer insolvency is not just an economic problem for creditors, but a social one as well means that an amendment of the Bankruptcy and Reorganization Law in this respect is certainly needed. But the legislators must tread carefully, to ensure that what they promulgate does not serve as a vehicle for debtors to escape their creditors. Indeed, that is why banks and other financial institutions, the archetypal creditors, have a vested interest in closely following the passage of the draft proposals on consumer insolvency through parliament.

Katarzyna Michno-Nasierowska
Dorota Paczoska
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