Effectiveness in satisfying creditors through physical person debt reliefs in 2008

The indebtedness of Czech households has been on the rise since 2000, while a broadening supply from the financial sector, the growing standard of living and also the tendency to favour a consumer lifestyle have contributed to the growing volume of credits. The insolvency act uses debt relief to settle citizens’ inability to pay. A further specific feature is the fact that debt relief can only be proposed by the debtor.

A fundamental problem is the emergence of the debt trap, where the debtor attempts to solve a present lack of funds by closing further loan agreements, usually under duress and under unfavourable conditions. Applicants arrive at a situation where banks are no longer willing to provide them with loans anymore, as they have ceased to fulfil their conditions, and they therefore turn to financial companies that are not subject to supervision by the Czech National Bank. The conditions for borrowing financial resources from these companies are markedly unfavourable and the fees for providing loans and interests very frequently exceed by many times the amount borrowed.

The aim of our survey is to ascertain the extent to which creditors of debtors in debt relief are satisfied. The survey included 450 debtors in debt relief begun in 2008, i.e. those for whom debt relief has ended or who are close to its fulfilment. Debt reliefs approved in 2008 have 60 instalments and these have either been repaid or are very close to fulfilment. A situation arises where we can for the first time evaluate the success of creditor satisfaction on the basis of real concrete data that we evaluated from the insolvency register.

On the basis of a survey carried out on real data over five years of the force of the insolvency act which, as of 2008, permits the settlement of a bankrupt state among physical non-entrepreneurial persons through so-called debt relief, it was found that individual creditors receive satisfaction amounting to approximately 50 % from their established receivables. The given initial finding is interesting especially in view of the fact that the law itself prescribes a 30 % minimal limit of satisfaction for debtors. From the data up to the present it can, for the time being, only be judged that this is one of the first completed debt reliefs and the ascertained fulfillment expresses the debtor’s real possibility to satisfy creditors’ receivables.