Microeconomic view on personal bankruptcy in the Czech Republic

The aim of the contribution is to analyse personal bankruptcy from the microeconomic perspective. The subject of the survey is the debtor who requests personal bankruptcy, i.e. the debtor whose indebtedness has led him/her into the debt trap. The interest rate level is crucial for the utilization of consumer credits. It influences both the willingness of the debtor to become indebted, and at the same time it is a profit for the creditor. In the contribution, the development during which the consumer becomes a debtor is monitored. That means development from the moment individuals decide to acquire a loan through bankruptcy which leads them to personal bankruptcy. The problem is initially handled from the perspective of microeconomic theory; then, through content analysis of documents, a sample of selected insolvency proceedings is surveyed, where the gradual development of the interest rate level and the size of the loan until the moment bankruptcy is declared are monitored. Analysis of selected insolvency proceedings from data accessible on the insolvency register has led to the preliminary conclusion that the higher the general indebtedness, the higher the interest debtors are willing to pay for the acquisition of a new credit. Judging by the level of original interest rates, creditor yields would be marked given the non-existence of the institute of debt relief. On the other hand, even prior to the implementation of debt relief, creditors had to take into account the risk of non-repayment of the debt due to a debtor’s financial insolvency or concealment of his or her incomes (i.e. departure into the grey economic zone), which personal bankruptcy aims to eliminate. Throughout debt relief, the creditor receives a proportional part of installments from the total volume of registered debts and need not incur further expenses – for instance, for court proceedings for a ruling on a receivable or forfeiture proceedings. After the implementation of the institute of debt relief, creditors had to calculate with the fact that they might not recover up to 70% of the registered receivable. The current legal amendment is therefore markedly unfavourable for creditors, whose main activity is not connected with providing loans.

Acknowledgment: This article has been processed as one of the outputs of the research project IGA/FaME/2015/021, “Analysis of the bank approaches in the enforcement of receivables from subjects in insolvency” registered at TBU Zlín.