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Consumer bankruptcy in Poland. In 2023, as many as two record monthly readings. Economist Michał Kisiel comments

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In March 2023, a monthly record for the number of consumer bankruptcies was broken, followed by May. – It should not be surprising that consumer bankruptcies are on the rise. Here, not only the economic situation matters, but there is also a growing awareness that there is a way out of the debt trap – comments economist Michał Kisiel from the University of Economics in Wrocław.

Dr. Michał Kisiel, when asked whether two record-breaking results in the number of bankruptcies announced (March – 2016 and May – 1827) is something that should raise concern, notes in an interview with TVN24 that we have been dealing with an upward trend for a long time, ” so you could say it’s in line with what we’ve seen over the years.”

– Last year, however, we had to deal with a rather exceptional situation, when the number of bankruptcies was lower than the year before. In part, it probably depended on the procedural changes that took place on the side of this process, because an electronic solution was implemented in the form of the National Register of Debtors, which, according to lawyers, extended the process in some cases, and therefore bankruptcy cases dragged on a bit, which affected the statistics – he explains economist.

He adds that the increase in consumer bankruptcies should not come as a surprise. – Here, not only the economic situation is important, but there is also a growing awareness that there is such a way out of the debt trap. Not everyone was aware that such opportunities existed, he said.

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Consumer bankruptcy “last resort”

The economist, explaining the process of consumer bankruptcy, points out that “it can be said that this is the last resort”. It should be remembered that it will leave a permanent mark on our financial history, so if we apply for a mortgage in the future, we will have to take into account, for example, requests for additional collateral or even a refusal.

The second thing is, of course, financial situation. In short, consumer bankruptcy means that we lose everything we have, with minor exceptions. It can be said that all assets are liquidated, and then in most cases we have to implement something called a repayment plan for a few more years, so what we work out is distributed among creditors. This is a period of such financial purgatory, which is also really a limitation of certain freedoms that we have as a consumer. This is definitely not a simple, unpleasant way – explains Kisiel.

In exceptional cases, there is no repayment plan

He points out that the Bankruptcy Law provides for a certain path for people who find themselves in a dramatic situation and there is no chance for improvement in their case when they are unable to pay their liabilities.

– It is possible that after declaring consumer bankruptcy, the assets are liquidated, and the remaining debts are written off immediately. In most such dramatic cases, what the debtor has is not enough to cover the debts, of course, so after the liquidation of the assets, certain liabilities remain and they can be written off automatically, immediately, without implementing the repayment plan, he points out.

– This path was earlier and it is intended for such cases when we have, for example, sudden disability, incapacity for work, i.e. a situation that does not promise any improvement. On the other hand, there are, for example, paths for those who can get out of a difficult financial situation on their own, i.e. conditional redemption of liabilities – adds Kisiel.

How does bankruptcy happen?

The economist, when asked if there is a recurring scenario of consumer bankruptcy, replies that in most cases we are dealing with a debt trap scheme. It consists in the fact that we have a liability that we are temporarily unable to repay, for example due to job loss, and we incur further liabilities to stay afloat.

– For example, we do not have the money to pay the mortgage installment and we use the credit card limit to pay the mortgage. It is called a debt trap because we are already paying off a cheaper loan with a more expensive loan. Our situation is dramatically deteriorating and we will have to reach for other, less and less favorable, more and more expensive sources of money, making it practically difficult for us to get out of the trap – points out Kisiel.

The economist adds that the debtor is often convinced, “justified hope”, that the situation he is dealing with is temporary and in 3-6 months everything will return to normal.

– Meanwhile, in a few months you can worsen your situation so much that it will take several years to get out of this trap. I think that this is also the reason why it is worth recommending having a financial cushion, i.e. at least modest savings, but allowing you to survive and cover household expenses for three months. This protects us from such dangers typical of novice debtors – he points out.

It’s too early to talk about the effects

For now, it is difficult to say what the life of people who have declared consumer bankruptcy looks like and whether they manage to get out of the way.

– Because 10 years ago consumer bankruptcy in Poland was actually fiction. It can be said that no one had access to such a solution and in fact a new chapter for consumer bankruptcy is 2020. Then, in March, coincidentally with the beginning of the pandemic, the amendment to the Bankruptcy Law entered into force, which actually opened the way to consumer bankruptcy everyone. I think that only after some time we will be able to talk about the effects of this. The history of this institution is too short to describe the situation of individual debtors and how it worked. The time will come for that, says Kisiel.

When asked about examples from other countries, the economist notes that in the US one can observe the existence of “a fairly narrow group” that “uses consumer bankruptcy in a strategic way” and exploits a loophole in the law. Such people take advantage of the opportunities offered by the developed credit market, get into trouble and repeat this situation.

– However, in Poland this effect has not yet been seen. With every discussion on consumer bankruptcy, there were arguments that loosening the conditions would lead to Poles declaring consumer bankruptcy en masse. However, the conclusion is that this solution is used in moderation, actually as a last resort. So far it doesn’t appear to be used. On the contrary, I think that a large group of debtors somewhere is not yet aware that such a solution exists and that they could start with a clean slate – says the TVN24 guest.

Consumer bankruptcy and housing

Consumer bankruptcy frees you from debt, but as a result we lose almost everything. Also an apartment, if we owned one. Does that mean we’re on the pavement then?

– If we have a flat, the receiver separates from the bankruptcy estate, from the sale of this real estate, the amount that allows us to rent a flat in the town where we have lived so far for a period of 12 to 24 months. The average rent rate in a given locality is taken and its multiple is determined. It can be said that we are not so much out of business as we have funds for a certain period of time. However, this is a really short period, often shorter than the period of implementation of the repayment plan – sums up Michał Kisiel.

Main photo source: Michael715/Shutterstock

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