All Czechs felt the effects of emergency measures due to coronavirus. A large part of them report that this has had an impact on their income and, therefore, their ability to repay the loans they have taken in the past.
According to a deputy and chairman of the subcommittee on distraint, insolvency and debt relief of Marek Výborný (KDU-CSL), the Czech Republic is in danger of a “debt pandemic”. To prevent it has a series of changes that went through the night this Thursday, the House and has yet to approve the Senate and sign the president.
Here’s an overview of the news, according to the situations people are facing:
I owe money and because of the measures I cannot manage to repay
Consumers, sole traders and businesses will be able to apply for deferral. This includes consumer and business loans and mortgages.
The condition is that the loans must have been concluded before 26 March 2020 for which the debtor has not been in default for more than 30 days at the same date. The debtor must ask the creditor to postpone the installments to three or six months, which must then agree with him.
‘Suspension of loan repayment shall not lead to a negative entry in the registers. So people do not have to worry that it would complicate any future loan applications, ”assures Finance Minister Alena Schillerová (for YES).
However, interest will continue to accrue during the grace period. According to Daniel Hůle, an expert on debt counseling from the non-profit organization People in Need, this makes sense.
“Because at least it will discourage people who are not affected by the crisis from asking for delay. You will have to pay the interest you accrue. This is something unpleasant to consider, ”says Hůle, noting that some banking houses themselves have declared that, for example, on mortgage loans, interest will not be charged to the borrower over this period.
It will not be possible to postpone credit card loans, operating leases or revolving loans.
Also, in the case of a delay of more than 90 days, the creditor must reduce the interest rate to 8.75 percent.
I am a self-employed and I have fallen under extraordinary measures
Until the coronavirus crisis, business loans were less laced by the rules and therefore more dangerous for borrowers than consumer loans. The changes that have passed through the Chamber of Commerce try to set clear limits for business loans.
Traders can apply for deferment of installments just like consumers. The ceiling of maximum sanctions is also new.
In the event of a delay of more than 90 days, the amount of the contractual penalty shall not exceed 0.1 per cent of the amount due. Most importantly, the sum of all contractual penalties must not exceed half of the total amount of principal.
According to Daniel Hůle, this is one of the most important changes. ‘At the same time, it is an advantage that this provision also applies to old contracts if the sanctions have not yet been applied. This can save a lot of money for many people and make the debt problem more tolerable, ”Hůle describes.
Tradesmen could also re-enter the debt relief process without the creditor’s consent.
I’m under execution
The House approved several innovations that are favorable to people in distraint.
For example, there has been an increase in the amount that a debtor can withdraw from his debited account on a one-off basis. And that is from double the subsistence minimum to four times, namely from 7720 to 15 440 crowns.
Sanctions should also be reduced by June. The maximum penalty interest should be capped at 10 percent per year. Therefore, if the borrower proves that the coronavirus crisis has made it impossible or more difficult to repay the debt.
A substantial change concerns the minimum principal due from which the property can be auctioned. And from 30 to 100 thousand crowns.
“In my opinion, this is crucial in a situation where middle class members will fall into the distraint. So far, only four percent of newly initiated executions per year have been launched against someone who has no execution. This means that the same set of people were still shooting in the distraints, ”says Daniel Hůle from People in Need.
Pavel Staněk, president of the Czech Creditors Association, objected to this change. “Since the auction of real estate is always the last way of execution, when the milder procedures have failed, lenders would lose any chance of repaying these debts,” says Staněk.
Until 30 June, the execution of mobiliary execution with the debtor is to be suspended. According to Staněk, the bailiffs had already approached this a few weeks ago, and the legislation only confirms the current situation.
Daniel Hůle, however, points out that bailiffs can still keep an inventory of assets that have the same effect on debtors. In practice, according to him, there are situations where executors in this way push for the people in the distraint to pay them preferentially, even at the cost of debt elsewhere.
I’m going through insolvency
Figuratively speaking, the need to repay at least thirty percent of the debt is also now falling for people who have gone into debt relief. In the case of insolvency, which was governed by the old law effective until the end of May last year, the limit of 30 percent of the debt repayment was mandatory for successful debt relief. Without that, they were not relieved. Newly, however, all insolvency will be assessed under the new law – and it is milder.
“If they repay more than 30 percent, then they are relieved, if they repay less, then it is necessary to examine whether they have made every possible effort. And when it is found that it is, it is also relieved. This is very important, ”says Daniel Hůle, according to which there are tens of thousands of people in the Czech Republic who are releasing their debts under the old law.
Businesses will also have easier access to insolvency. Newly, the creditor’s consent will not be necessary.