The 2016 Consumer Insolvency Act introduced the institute of consumer insolvency, aimed at enabling insolvent consumers to restructure their liabilities and to settle the claims of creditors evenly.
However, the over-indebtedness of natural persons subject to an attachment of earnings for a longer period of time continues to represent a significant problem. With their bank accounts blocked, citizens have a hard time living normally as they can receive their earnings only through the so-called protected accounts.
As a measure for helping the blocked citizens, the Act on Amendments to the Consumer Insolvency Act was adopted by the Croatian Parliament adopted on 6 July 2018 and entered into force on 1 January 2019.
Among other things, it introduced a new institute of simple consumer insolvency procedure, an accelerated and simplified procedure aimed to settle the claims of creditors from eligible assets and to relieve the consumers of the remaining debt.
Predicable consequences of the Act are, first of all, reduction of the number of citizens with blocked bank accounts and the number of enforcement proceedings, which will ease the situation of citizens whose accounts have been blocked for a long time, and offer them a second chance.
Who is eligible?
The precondition for commencing simple consumer insolvency proceedings is that a citizen's bank accounts have been blocked for a continuous period of over 3 years, and the principal claim does not exceed 20,000 HRK. According to the available analyses, there are over 100,000 such citizens.
The proceedings are entirely free-of-charge for the consumer, i.e. the consumer is not obliged to pay a court fee. The proceedings are initiated ex officio by FINA, and any costs of the trustee are paid from the state budget.
Who initiates the simple consumer insolvency proceedings?
The simple consumer insolvency proceedings are initiated ex officio by FINA according to its records, after the consumer has been allowed to respond if they agree with it.
How are the simple consumer insolvency proceedings initiated?
FINA invites all consumers who meet the preconditions for the simple consumer insolvency procedure to state within 15 days whether they agree to simple consumer insolvency proceedings through realisation of their assets.
The preconditions for conducting simple consumer insolvency proceedings is that the consumer has a debt recorded in the Payment Bases Sequence Registry, kept by FINA, for a continuous period of 3 years for a principal claim not exceeding 20,000 HRK.
If the consumer agrees to the proceedings, they are obliged to submit an inventory of their assets within the specified period, and may submit a proposal that the simple consumer insolvency procedure also includes creditors who have withdrawn a payment basis. The statement and the list of assets are submitted on a prescribed form.
If the consumer fails to respond within the deadline or submits a list of assets without giving consent to the proceedings, they will be deemed to have given consent to the simple consumer insolvency procedure through the realisation of their assets. Furthermore, if they state their consent to the simple insolvency proceedings through realisation of their assets but fail to provide a list of those assets, they will be deemed to have declared that they have no assets from which their creditors’ claims could be settled.
The consumer is accountable for giving a false or incomplete list of assets in the same manner as for giving a false statement in court.
The main criterion which must be met to relieve the consumer of their liabilities is fairness. If it is established during the proceedings that the consumer is not fair, they will not be eligible for such procedure for the following five years.
Pursuant to the Act on Amendments to the Consumer insolvency Procedure Act, necessary subordinate legislation was adopted related to the forms to be used for the procedure, so that invitations are sent using the prescribed forms. The purpose of the forms is to make the procedure as simple and straightforward for consumers as possible, so the invitations to consumers (to respond on their consent with the procedure) contain all the necessary information about the procedure itself, in order to inform the consumers of their rights and obligations.
FINA sent the first invitations on 10 January 2019 to 10,000 consumers who meet the criteria for the procedure. This was followed by 10,000 invitations every day, until all the consumers who met the criteria were informed about the possibility of simple consumer insolvency proceedings.
Since this is a permanent measure for helping citizens whose accounts are blocked, consumers keep getting the invitations once they meet the necessary criteria.
Naturally, regardless of the fact that the measure was designed in the interest of consumers, every consumer can state that they do not wish to have the proceedings conducted in their case. Consumers who fail to respond to the invitation will be deemed to have given consent to the proceedings, but they still have the possibility to inform the court that they do not wish to have the proceedings conducted. In such cases, the consumers’ accounts will stay blocked.
Another novelty is that, in case a document is published on the e-bulletin board because of a failed postal delivery, the citizen will receive notification thereof in their post box as well as their Personal User Mailbox in the e-Citizens system, provided they have activated it.
Simple consumer insolvency proceedings before the court
A proposal to institute simple consumer insolvency proceedings is submitted by FINA to the competent municipal court on a standard electronic form if the consumer has given their consent to the proceedings, or is deemed to have given consent under the provisions of the Act on Amendments to the Consumer Insolvency Act.
If a proposal to institute simple consumer insolvency proceedings is justified, and the consumer has given their consent (express or presumed), the court will post an invitation on the e-bulletin board to all the consumer's creditors to respond within 45 days in order to challenge the list of assets submitted by the consumer and/or notify the court of any assets of the consumer which could be realised as part of the insolvency estate if the simple consumer insolvency proceedings are instituted, along with evidence for their allegations.
The court is obligated to establish the value of the consumer’s assets as well as any disposals of the property by the consumer in the last three years before opening the simple consumer insolvency proceedings.
The court determines the value of the consumer's movables or rights by a conclusion, based on a free assessment. The court may entrust the assessment to a bailiff or a court assessor, or a special expert.
Value of the consumer's realisable assets does not exceed 10,000 HRK
If the court establishes that the value of the consumer's assets realisable as the insolvency estate does not exceed 10,000 HRK, it will ex officio issue a decision on opening and closing simple consumer insolvency proceedings.
In this case, the court will not appoint a trustee, nor set a period if scrutiny of debtor conduct, but will relieve the consumer of the remaining liabilities relating to the payment bases and creditors for whom the simple consumer insolvency proceedings have been initiated.
Value of the consumer's realisable assets exceeds 10,000 HRK
If the court establishes that the value of the consumer's assets realisable as the insolvency estate exceeds 10,000 HRK, it will ex officio issue a decision on opening simple consumer insolvency proceedings and appoint a trustee.
The court may appoint a trustee from the list of attorneys at law composed for the purposes of simple consumer insolvency proceedings at that court by the Croatian Bar Association, or a insolvency trustee registered on List A or List B of insolvency trustees for the area of the commercial court on the territory of which is the seat of the municipal court conducting the consumer insolvency proceedings.
The lists of attorneys at law who can be appointed as trustees are posted on the e-bulletin board of the courts, at: https://e-oglasna.pravosudje.hr/?q=opcinski-sudovi
If a consumer has permanent wages which are not garnished, the court will instruct the consumer to transfer a specific sum of the earnings to the account of the court in the period of 12 months from the date the decision on opening simple consumer insolvency proceedings becomes final and binding. The specific sum will be determined by the court by applying the enforcement law provision on the limitation of enforcement against permanent wages.
A insolvency trustee or attorney at law appointed as a trustee is obliged to cash in within 12 months all the movable property, claims, stocks, shareholdings, securities and other property or material rights listed by the consumer in the list of assets or identified by the court.
Movable property and rights that are not realised within the specified period are considered unrealisable assets and remain with the consumer.
Considering that the procedure can be applied for debts not exceeding 20,000 HRK, immovable property owned by consumers are not considered realisable property and cannot be used to settle the claims of creditors.
After the realisation of property and rights, i.e. after the consumer settles their liabilities from their permanent earnings according to a court decision, and if the requirements for a suspension of simple consumer insolvency proceedings are not met, the court will conclude the proceedings without setting a period of scrutiny of debtor conduct.
In the decision on conclusion of simple consumer insolvency proceedings, the court will relieve the consumer of the remaining liabilities relating to payment bases and creditors for which the simple consumer insolvency proceedings were initiated.
Other novelties include electronic filing of court cases and application of a new functionality in proceedings i.e. the possibility of electronic communication with the court for trustees who are attorneys at law, while FINA will submits all proposals to courts electronically, in a paperless manner, and courts sign their decisions with a qualified electronic signature.