The introduction of personal insolvency proceedings in Bulgaria has been a recurring matter of discussion. Recently it has resurfaced following the submission of a new bill to the National Assembly on November 22, 2024, that aims to regulate what is commonly referred to as “personal bankruptcy” – the Personal Insolvency Bill (“the Bill”).
Although similar bills have already been discussed by the legislators in the past, no such act has been adopted so far. As a result, Bulgaria remains the only country in the European Union without a legal framework for initiating personal insolvency proceedings. The adoption of such act would not only fulfill Bulgaria’s obligation to the European Commission under its Recovery and Resilience Plan, but it would also provide much-needed regulation for social relations closely tied to individuals’ financial stability and well-being.
The Bill establishes the possibility of initiating insolvency proceedings for individuals unable to pay their debts, aiming to create rules for conducting the process and outlining its consequences. Among the key principles laid in the Bill, are publicity and accessibility, good faith, rapidity and efficiency, and balancing the interests of debtors and creditors. The framework should ensure that all creditors of the debtor have the right to participate in the proceedings.
The proposed regulation is designed to be applicable to bone fide debtors. In accordance with the Bill, such debtors are the ones, whose inability to pay their debts – defined as an objective state of inability for the individual to meet its due obligations; and a prerequisite for initiating the insolvency proceedings – is caused not by deliberate actions of the debtor himself or by undertaking obligations inconsistent with their financial standing, but by adverse factors beyond their control. This way, it is possible to ensure a balance between the interests of both debtors – who should not always and in all circumstances be shielded by the legislator, and creditors – whose claims and their satisfaction should not excessively burden individuals who are facing severe financial difficulties due to objective circumstances. The goal is to equitably distribute the burden of the debtor’s over-indebtedness between both parties.
The proceedings begin at the initiative of the bona fide debtor, and it is conducted before the court, with provided support from the State. It covers all obligations of the individual arising from transactions and agreements made for personal consumption or related to carrying out an independent economic or professional activity, provided that said activities do not qualify the individual as a trader. The Bill takes consideration of the debtor’s basic living needs, as well as their limited ability to cover the costs of the proceedings, due to their inability to cover their debts. Alternative procedures are proposed, consistent with the individual’s financial standing, potentially leading to the settlement of their debts. In certain cases, debt forgiveness may also be granted, subject to specific conditions.
The Bill is yet to be reviewed and voted on by the National Assembly. Only then it will become clear whether this will be another unsuccessful attempt to regulate personal insolvency or if the legislators will finally establish a legal framework for these proceedings.
You can read the full text of the Bill here.
