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Personal bankruptcy deals only with the consequences, not the causes

In January, the Chamber of Deputies passed an amendment to the Insolvency Act, which changes the parameters of personal bankruptcy. The current condition, according to which the borrower must pay 30% of his debts in five years, supplements the amendment with other options. It would also be possible for a seven-year debt, in which people in the debt trap would not return anything. Personal bankruptcy in principle addresses only the consequences and not the causes.

An amendment to the Insolvency Act would allow for debt relief within three years, provided that the borrower pays at least half of the claims of creditors. Another new option would be to pursue claims repayment for seven years, which means less than 30%. The new legislation would also allow debt relief for people who do not meet the current basic requirement requiring at least 30 percent of their debt to be repaid within five years. In connection with the institution of personal bankruptcy, terms such as debt amnesty or moral hazard often fall. "Creditors can hardly agree with the borrowers on a common debt relief procedure. One of them sees amnesty of debt, the second is not providing another life chance, " says Petr Vencálek (Bez banka sro).

In the extreme case, the debtor would not have to repay anything while he would be under the supervision of the insolvency administrator and the court for seven years. The only expense would be the reimbursement of the costs related to debt relief, which is about a thousand crowns a month for the insolvency administrator's work. "It does not really matter if you get rid of debt for three, five or seven years and pay 30% or nothing. Debt relief is punished by honest lenders and lenders. Those dishonest people, who are attracted to low interest and live mainly by contractual fines and other sanctions, will always find a way to lose their profits, " says Petr Vencálek. According to him, debts are payable and there is a repayment schedule that can be shortened or extended. "If we stop lying in the pocket, then it is absolutely clear that the injured is always the one who lost money ," adds Vencalek.

People get into debt traps often with their irresponsible behavior. In most cases, it is not a loan for "investment" , for example in education, but very easy to borrow for consumption. It is generally known that in the pre-Christmas period, the number of loan applications increases several times. People also borrow on a holiday and a separate chapter is the demonstration of the so-called shame. "Marketing massage or comparing with the environment often forces people to buy things they can not afford and they do not even need them ," says Petr Vencálek. The new Consumer Credit Act, due to the difficult licensing conditions, has swept the market from various loan predators last year. New providers must also more rigorously assess the ability of the applicant to repay the loan. However, in the field of financial literacy, the Czechs still have reserves. "The solution is not to pull irresponsible debtors from ex post, but to consistently educate and explain the principles of money functioning in primary schools ," concludes Petr Vencálek.

Source: tz Lesenský.cz, edited editorially

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