On the first day of 2016, the concept of consumer bankruptcy was introduced. Consumer bankruptcy proceedings can only be initiated if the consumer is insolventOn the first day of 2016, the concept of consumer bankruptcy was introduced into the legal order of the Republic of Croatia with the aim of developing a system that will result in creating conditions for insolvent consumers to reschedule their liabilities or start anew, and enable creditors to settle their claims evenly.
The consumer in terms of the concept of consumer bankruptcy is defined in the Consumer Bankruptcy Act.
Consumer bankruptcy proceedings can only be brought if the consumer is insolvent.
The consumer is insolvent if:
- They are unable to meet due financial liabilities (insolvency) or
- They cannot meet one or more due financial liabilities in the total amount of more than 3.981,68 EUR (HRK 30.000,00) (insolvency conditions) for at least 90 consecutive days.
- Out-of-court proceedings (mediation) or
- Court proceedings:
- A court settlement or
- Consumer bankruptcy and a conduct review period.
Out-of-court proceedings (mediation)It is brought by the consumer or each of his creditors with the explicit consent of the consumer upon request (on the prescribed form), and is conducted by an intermediary in the counselling centre (Financial Agency (FINA) branch or other persons licensed to perform counselling activities).
Branches of the Financial Agency that perform counselling activities
The consumer or the creditor who initiates the proceedings may choose the branch office of the Financial Agency in which they will submit an application for out-of-court bankruptcy of the consumer regardless of the place of residence.
The following should be enclosed with the application:
- An inventory of assets and liabilities (on the prescribed form)
- Proof of the existence of a reason for bankruptcy
- Documents from which the probability of the existence of the claim arises (attached by the creditor if the creditor is bringing the proceedings)
- Explicit consent of the consumer to the out-of-court proceedings (attached by the creditor if the creditor is bringing the proceedings).
The advance payment is made by the applicant in the amount of 39,82 EUR (HRK 300.00). If the applicant is the consumer, they may be exempt from the obligation to make an advance payment in the manner and under the conditions prescribed by special regulations governing free legal aid.
The plan for meeting liabilities (on the prescribed form) includes the:
- Amount of consumer's liabilities
- Percentage of reduction of the liabilities
- Amount to be paid
- Payment deadlines
- Manner of meeting the liabilities to each creditor
- Proof of payment of the advance in the amount of 39,82 EUR (HRK 300) for the costs of out-of-court proceedings, i.e. a decision on granted free legal aid.
The invitation to participate is not delivered personally by the counselling centre to the creditors, but it is obliged to warn the consumer of this, as well as of the fact that the consumer has the option to inform the creditors of the time and place when they are invited to come to the counselling centre.
All forms will be available on the counselling centre premises and on the website of the e-Court Notice Board.
The out-of-court proceedings last a maximum of 30 days from the date of the meeting specified in the invitation to participate.
In exceptional cases, the counselling centre may extend the deadline for another 30 days if:
- They assess that there is a possibility of concluding an out-of-court agreement between the consumer and all of the creditors or
- The consumer and all of the creditors agree to extend the out-of-court proceedings.
- Has the effect of out-of-court settlement
- Represents an enforceable document
- Has no legal effect on the creditors who have not participated in it.
- Declare that they do not wish to take part in the out-of-court proceedings or
- Bring or continue the proceedings for the purpose of enforced recovery of the claim.
Court proceedingsAre brought at the consumer's petition before the competent municipal court in whose territorial jurisdiction the consumer resides.
The following should be enclosed with the petition for consumer bankruptcy proceedings:
- An inventory of assets and liabilities (a completed form from the counselling centre)
- A plan for meeting liabilities (a completed form from the counselling centre).
The costs of the consumer's bankruptcy proceedings are advanced by the consumer in a lump sum determined by the court (it cannot be less than 132,72 EUR (HRK 1,000.00)), while each creditor bears their own costs of the proceedings.
If the consumer is unable to advance the costs of the proceedings, and:
- has assets, the court may decide to advance the costs of the proceedings from the budget, which will then be reimbursed as priority from the liquidated consumer's assets
- has no assets, they can be exempt from the obligation to pay an advance.
It is considered that a document has been serviced on the expiration of the eighth day from the date of its publication on the e-Court Notice Board.
Court proceedings can be divided into three stages:
- Preparatory hearing—begins with consideration of the plan for meeting liabilities, and once accepted, it has the effect of a court settlement
- Commencement of consumer bankruptcy proceedings (if the court establishes there is a reason for bankruptcy and if the plan for meeting liabilities was not accepted at the preparatory hearing):
- The consumer has assets and the court takes a decision on the commencement of consumer bankruptcy proceedings and appoints a trustee
- The consumer has no assets and the court takes a decision on the commencement and conclusion of the proceedings, appoints a trustee and determines a conduct review period
- of five years.
Conduct review periodA conduct review period may not be less than one year, nor more than five years long.
During the conduct review period, the trustee liquidates and distributes the consumer's assets in accordance with the final distribution list and disposes of the property rights for and on behalf of the consumer.
During the conduct review period, the consumer is obliged to inform the court and the trustee of their work or their efforts to find a job, hand over half of the assets received as inheritance to the trustee and immediately notify the trustee of any change of residence or place of employment.
The consumer may propose that the real estate the consumer needs for housing is not sold until the end of the conduct review period if they do not own another property and have no other accommodation available to them nor are they able to find one.
The court will deny the consumer exemption from the remaining liabilities:
a) At the proposal of the bankruptcy creditor, if the consumer violates the consumer’s duties during the conduct review period and thus prevents the settlement of the creditor’s claims, i.e. if the consumer:
- Is convicted res judicata of a property crime, economic crime or other criminal offence which would indicate their negligence and dishonesty in the performance of their obligations and duties
- In the last three years preceding filing the petition for consumer bankruptcy or thereafter deliberately or negligently provided inaccurate or incomplete information about their financial situation in order to take out a loan, receive payments from public funds or avoid paying taxes or fulfilling other public service obligations
- In the last three years before filing the petition for consumer bankruptcy or thereafter deliberately or negligently prevented the settlement of creditors’ claims by undertaking inappropriate obligations, negligently and unfairly reduced the value of their assets or postponed bankruptcy proceedings without any prospect of improvement of their financial situation
- During the proceedings deliberately or negligently violated their duties of reporting and cooperation under the Consumer Bankruptcy Act
- Deliberately or negligently provided incomplete and inaccurate information in their inventory of assets and liabilities.
If the conditions for taking a decision on denial of exemption from the remaining liabilities are not met, the court will exempt the consumer from the remaining liabilities.
With the decision on exemption from the remaining liabilities, the consumer cannot be exempt from:
- Their legal obligation to support children, parents and other persons whom they are obliged to support by law
- Return of proceeds of crime or misdemeanour
- Compensation for damage caused by a criminal offence or misdemeanour
- Compensation for death or serious bodily injury.
After the conduct review period ends, the conscientious consumer will be released from their liabilities to the creditors.
At the proposal of the creditor, the court may also take a decision on the revocation of the consumer's exemption from the remaining liabilities if:
- It subsequently establishes that the consumer has violated any of their duties or
- thereby significantly hindered the settlement of the creditors’ claims.
Simple consumer bankruptcy proceedingsThe Act on Amendments to the Consumer Bankruptcy Act, which entered into force on 1 January 2019, introduced a new concept of simple consumer bankruptcy proceedings—accelerated and simplified proceedings aimed to settle the creditors' claims from the assets suitable for this purpose and to discharge the consumers from the remaining debt.
A condition for simple consumer bankruptcy proceedings is that the consumer has had a debt recorded in the Register of the order of payment bases for a continuous period of three years with the principal amounting to up to 2.654,46 EUR (HRK 20,000).
The proceedings are completely free for the consumer (the consumer is not obliged to pay a court fee). The proceedings are brought ex officio by FINA, and any costs of the trustee are paid from the state budget.
Simple consumer bankruptcy proceedings are brought ex officio by FINA pursuant to its records, after the consumer has been allowed to state whether they agree with the proceedings taking place.
FINA will invite all consumers who meet the conditions for simple consumer bankruptcy proceedings to state within 15 days whether they agree with simple consumer bankruptcy proceedings being brought against their assets.
If the consumer agrees with the proceedings, they are obliged to submit an inventory of their assets within the specified period, and may also file a petition to have simple consumer bankruptcy proceedings include the creditors who have withdrawn their payment bases. The observations and the inventory of assets are submitted on the prescribed form.
If the consumer does not provide their observations within 15 days from the invitation delivery or does not provide an inventory of assets, it will be deemed that the consumer agrees with the simple consumer bankruptcy proceedings against their assets. Moreover, if the consumer provides observations stating that they agree with the simple consumer bankruptcy proceedings against their assets, but does not make an inventory of their assets, it will be deemed that the consumer declared to have no assets from which their creditors could be settled.
It should be noted that the basic criterion that has be met in order to discharge the consumer's liabilities is that the consumer is fair. If it is established in the course of the proceedings that the consumer is not fair, the consumer will not be able to recommence the proceedings for the next five years.
In the proceedings, forms will be used to make them as simple and intelligible as possible for the consumer, since they include all the necessary information on the proceedings so that the consumer is informed of his rights and obligations.
A petition for simple consumer bankruptcy proceedings is filed by FINA with the competent municipal court on the prescribed form, electronically, if the consumer agrees with the simple consumer bankruptcy proceedings against their assets or if the consumer is deemed to agree with the proceedings.
If the petition for simple consumer bankruptcy proceedings is founded, the court will publish an invitation on the e-Court Notice Board website to all of the consumer’s creditors to challenge the inventory of assets submitted by the consumer and / or to inform the court of the consumer's assets which could be liquidated as bankruptcy estate in the event that simple consumer bankruptcy proceedings commence and to provide evidence on which they base their assertions within 45 days from the invitation.
The court is obliged to establish the value of the consumer's assets, as well as how the consumer disposed of their of assets in the last three years before the commencement of simple consumer bankruptcy proceedings. The value of the consumer's movables or rights is assessed at the court’s discretion. The court may entrust the assessment to a bailiff or a court assessor or a special expert.
The value of the consumer's assets which can be liquidated is equal to or less than 1.327,23 EUR (HRK 10,000)If the court establishes that the value of the consumer's assets that can be liquidated as bankruptcy estate is equal to or less than 1.327,23 EUR (HRK 10,000), it will ex officio take a decision on the commencement and conclusion of simple consumer bankruptcy proceedings.
In this case, the court will not appoint a trustee nor set a conduct review period, but it will discharge the consumer from the remaining liabilities relating to the payment bases and creditors with respect to which the simple consumer bankruptcy proceedings were brought.
The value of the consumer's assets which can be liquidated is higher than 1.327,23 EUR (HRK 10,000)If the court establishes that the value of the consumer's assets that can be liquidated as bankruptcy estate is higher than 1.327,23 EUR (HRK 10,000), it will ex officio take a decision on the commencement of simple consumer bankruptcy proceedings and appoint a trustee.
As this trustee, the court may appoint an attorney at law from the list of attorneys at law drawn up by the Croatian Bar Association for the purposes of simple consumer bankruptcy proceedings or it may appoint a bankruptcy trustee from list A or list B of the bankruptcy trustees for the territorial jurisdiction of the commercial court in whose territorial jurisdiction the municipal court conducting the consumer bankruptcy proceedings has its seat.
The lists of attorneys at law who can be appointed trustees are posted on the e-Court Notice Board website.
If the consumer receives a steady money income which is not subject to enforcement, the court will order the consumer to pay a certain amount of this steady income to the court account within 12 months of the finality of the decision on the commencement of simple consumer bankruptcy proceedings, which amount the court will establish by applying the rules of enforcement law on enforcement restrictions on steady money incomes.
The bankruptcy trustee or the attorney at law appointed as the trustee is obliged to liquidate the movables or claims, shares, business shares, securities and other property rights or benefits which the consumer listed in the inventory of assets or whose existence the court established within 12 months from the finality of the decision on the commencement of simple consumer bankruptcy proceedings.
Movables and rights that are not liquidated within the specified period are considered to be assets which cannot be liquidated and the consumer keeps them.
Considering that the amount of claims is up to HRK 20,000, real properties owned by consumers are not considered to be assets which can be liquidated and cannot be used to settle creditors' claims.
After the liquidation of property and rights; that is, after the consumer meets the imposed liabilities from their steady money income pursuant to the court’s decision and if the conditions for suspension of simple consumer bankruptcy proceedings are not met, the court will conclude the simple consumer bankruptcy proceedings without determining a conduct review period.
In the decision on the conclusion of simple consumer bankruptcy proceedings, the court will discharge the consumer from the remaining liabilities relating to the payment bases and creditors with respect to which the simple consumer bankruptcy proceedings were brought.