Debt relief of individuals and the rate of satisfaction of their creditors in the Czech Republic

Abstract

According to statistics, 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 (which is connected with debt financing of housing) and the tendency to favour a consumer lifestyle have contributed to the growing volume of credits. The aim of our survey is to ascertain the extent to which creditors of debtors in debt relief are satisfied. A sample of insolvency proceedings permitted in 2008 was surveyed. Of these insolvency proceedings, we selected personal bankruptcies which underwent the five-year repayment period required by the insolvency act. A situation emerges in which we can for the first time evaluate the success of creditors satisfaction on the basis of concrete data which we gained from the insolvency register. On the basis of a survey, it was found that individual creditors are satisfied to 50 % of their ascertained 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. Further, the survey focused on the problem of securing receivables. The insolvency act has markedly changed the position of the creditor which secures its receivable by some form of collateral. A secured receivable can be monetized during the course of insolvency proceedings, and following the deduction of connected expenses the entire proceeds from the monetized property belong to the secured creditor. By contrast, in a case of personal bankruptcy a non-secured creditor is satisfied according to a percentage in a payment schedule. We surveyed especially the proportion of secured receivables and the form of collateral. From the data it stemmed that 19.62 % of receivables are secured with the debtor's property, most frequently a house, plot of land, flat or other form of collateral.