Repayment Plan for Creditors in Bankruptcy Proceedings – What You Need to Know

How to File for Consumer Bankruptcy?  

A petition for consumer bankruptcy must be submitted to the competent bankruptcy court. It should include the debtor’s personal details, a list of assets, a list of creditors, and a justification for the insolvency. Supporting documents must be attached, such as loan agreements, payment demands, or income certificates. For more detailed guidance, see our article on consumer bankruptcy.

What Is a Repayment Plan for Creditors?

A repayment plan is a schedule according to which the debtor repays their obligations after the declaration of consumer bankruptcy. It is one possible outcome of the bankruptcy process, setting out both the repayment amounts and the duration. The court determines the repayment plan based on an analysis of the debtor’s financial situation, earning capacity, and the outstanding debts.

List of Creditors Included in the Repayment Plan – How Is It Created and What Are the Creditors’ Rights?  

The list of claims is a key document in bankruptcy proceedings. It is prepared by the trustee based on the creditors’ submissions and the debtor’s documentation. Creditors have the right to file their claims within a set deadline and participate in the proceedings. 

Preparation of the Repayment Plan  

The trustee plays a central role in preparing the repayment plan. They gather and analyze information on the debtor’s assets and financial condition, draw up a list of creditors, determine the amount of debt, and assess the debtor’s ability to repay, considering income, living costs, and personal circumstances. The trustee also considers the creditors’ positions and the debtor’s financial history, including whether the debtor contributed to their own insolvency. Once the data is collected, it is submitted to the court, which makes the final decision on the repayment conditions.

Criteria for Determining the Repayment Plan: 

Pursuant to Article 491(15) of the Bankruptcy Law, in determining the repayment plan, the court takes into account:

Debtor’s earning capacity

• The court considers not only actual income but also potential earning capacity.
• Key factors include the debtor’s education, professional experience, age, and health.
• If a debtor deliberately chooses a lower-paying job, the court may base the plan on a higher assumed income.

Living expenses of the debtor and their family

• The court examines day-to-day living costs but disregards excessive or luxury expenditures.
• Expenses related to dependents (e.g., children, spouse) are included.
• Providing realistic cost estimates is crucial, as underestimated expenses may result in higher monthly repayments.

Amount of outstanding obligations

• The court considers the total debt and number of creditors.
• If large debts were incurred in a short time, the repayment plan may be stricter..

Duration of the Repayment Plan: 

Under Article 491(15) of the Bankruptcy Law, the repayment plan may be set for:

• 12 months – if the debtor repays at least 70% of their obligations.
• 24 months – if the debtor repays at least 50% of the debt.
• 36–84 months – if the debtor has no assets or if the insolvency was caused intentionally or by gross negligence.
• The duration includes the time passed since the declaration of bankruptcy (after six months).

What Happens After the Repayment Plan Is Approved?  

Once approved, the debtor is obligated to make payments regularly according to the court-defined schedule. During this period, the debtor should avoid incurring new financial obligations that could jeopardize the plan. If repayment becomes difficult, the debtor may request a modification of the plan, but must demonstrate a significant change in financial circumstances. Successful completion of the plan leads to a court order confirming its execution and discharging the remaining debts, resulting in full debt relief.

What If I Can’t Keep Up with the Payments?  

If the debtor faces financial hardship that prevents timely repayments, they may apply to the court for a modification of the plan. The court may reduce the payment amount or extend the repayment period, taking into account the debtor’s new financial or personal situation. However, the debtor must prove that the difficulty is beyond their control (e.g., job loss or health deterioration). Deliberate avoidance of payment or non-cooperation with the court may lead to the plan being revoked, which results in no debt discharge and allows creditors to resume enforcement.

Example of a Repayment Plan  

Mr. Kowalski ran a construction business for many years. Initially, it grew rapidly, but liquidity problems, unreliable contractors, and rising material costs led to bankruptcy. He was left with debts totaling PLN 500,000 owed to banks, suppliers, and the tax office.

Unable to repay, he closed his business and filed for consumer bankruptcy. The court found that he did not act with intent or gross negligence. After the liquidation of his assets, the court set a 36-month repayment plan.

Mr. Kowalski was ordered to pay PLN 1,500 per month, an amount tailored to his income and cost of living. Upon completing the plan, his remaining debts will be discharged, giving him a fresh financial start.

Summary

The repayment plan is a crucial stage of the bankruptcy process, defining how debts are to be settled. Its length and installment amounts depend on the debtor’s earning capacity, living expenses, and total debt. Legal advice can significantly help in negotiating favorable repayment terms.

FAQ – Frequently Asked Questions

Is a repayment plan always required?

No. In special cases, the court may discharge debts without requiring a repayment plan, for example, if the debtor is permanently unable to work.

Can the repayment plan period be shortened?

Yes. If the debtor repays a certain portion of the debt (e.g., 70%), the court may set a shorter repayment term.

Can creditors challenge the repayment plan?

Yes. Creditors may raise objections and request changes, but the final decision rests with the court.

What are the consequences of completing the repayment plan?

Once the plan is completed, the debtor is fully discharged from the remaining obligations, and the bankruptcy process is concluded.

For further information on consumer bankruptcy and repayment plans, contact our law firm.