Good-faith debtors who are in financial difficulty can opt for the instituting of a collective procedure to recover their financial situation by debt settlement and, in certain cases, even with them keeping the assets, in conformity with Law no. 151/2015 on personal insolvency procedures. The banking community from Romania has reiterated that the bringing forward of the date of the coming into force of Law no. 151/2015 on personal insolvency procedures is necessary. Initially, the law was to come into force starting with 26 December 2015, but it was delayed by one year. Meanwhile, the authorities have contemplated the bringing forward of the date of the law on personal insolvency’s coming into force.
The major advantage of the law on personal insolvency procedures compared to the law on the debt discharge pertains to the fact that after insolvency, the goodfaith debtor, a natural person, can keep possession of the immovable asset pledged as collateral for the loan he/she applied for, while the debt discharge means the loss of the family residence/ land.
In the insolvency procedure, the foreclosure is suspended and the interest/ penalty calculation is stopped. During the entire insolvency procedure, the customer has available amounts that provide a reasonable living standard for the debtor and his/her family, these levels being set by the Insolvency Commission or by the liquidator.
The personal insolvency law sets forth the coverage of the debtors’ debts as much as possible, and it applies only to good-faith customers, natural persons, who are in financial difficulty and not to the customers who can pay but do not want to pay any longer. The forms of the insolvency procedures applicable to the debtors holding traceable goods and revenues are the insolvency procedure based on a debt repayment plan and the insolvency procedure based on the liquidation of assets. The simplified insolvency procedure applies to the debtors who have no traceable goods and revenues and the total amount of their obligations stands at most 10 monthly minimal wages.
Within the insolvency procedure based on a debt reimbursement plan, debtors continue to own their collateral if they observe the reimbursement plan which sets forth the coverage of at least 50% of the total claims’ value. In this procedure, customers can opt for the realization of immovable assets. The payment of the difference will be made by debtors via payments scheduled in the reimbursement plan.
If the reimbursement plan of the procedure is not observed, then the insolvency procedure via the liquidation of assets and/or foreclosure are/is chosen. Within the insolvency procedure by the liquidation of assets, after the liquidation of assets and the payment of creditors, the law court can decide that a debtor’s debts are released.
Thus, if after one year since the date the procedure was closed, a debtor has covered at least 50% of the total claims’ value, he/she can benefit from his/her debt release. The law court can dispose the debt release if after 3 years since the date the procedure was closed, a debtor has covered at least 40% of his/her total claims’ value, if, with all his/her diligence, this debtor has not managed to cover at least 40% of his/her total claims’ value, in a period of 5 years since the date the procedure was closed. The special debt discharge can be applied also if, although all the actions stipulated by law were carried out, the procedure liquidator has not managed to realize a traceable good in a time period of 2 years. The respective immovable asset continues to be part of the debtor’s patrimony, free of any encumbrance if no creditor exercises his right to opt for the taking over of this asset in exchange for his receivable and if the asset was not realized via foreclosure since the date the procedure was closed. Of course, the way the law is enforced and its impact upon banks depend on the training of the staff in charge with its implementation. The training of the insolvency commissions’ staff is one of the powers of the central Insolvency Commission but all the stakeholders could contribute with professional trainers for the appropriate training of the insolvency commissions’ employees.
The Romanian Association of Banks supports the application of this solution of personal insolvency in the case of good-faith debtors who are in financial difficulty, as, in this way, the stability and predictability of the legal framework and of lending relations are provided, while moral hazard and the negative consequences for consumers, the banking sector and the economy in general are avoided.
The banking community reiterates its opinion that the law on datio in solutum puts to danger the mortgage credit market with extreme consequences for young families and for any young person in general who will feel that their access to lending is drastically restricted. The passing of this law on debt discharge, where loans with property as collateral are affected by the giving of this collateral in lieu of payment, determines banks – for the loan products to be launched in the future – to significantly tighten their lending terms. And this is so not because banks want that but rather because they are forced by their operating manner and because they have to take into account this risk as well. The advance payment requested for a loan has gone up and loans’ costs will go up as well. The Romanians with limited financial resources will find it impossible to buy homes. A first consequence of the residential building supply going up on the real estate market will be prices going down. Following the likely drop in the residence home process – in a country of home owners – Romanians’ wealth will shrink. The law will have, by restricting access to credit, a negative impact horizontally upon real estate developers, the construction industry, the construction materials’ industry and the number of real estate transactions.
The adopted law induces systemic risks into the banking sector of Romania, having impact upon its financial stability by affecting banks’ solvency with potential consequences upon depositors. For existing investors, the coherence of the legislative act and the predictability of the business environment are essential, and when these conditions are not provided, investors are somehow obliged to migrate to markets offering more stability from all points of view. Romania’s development strategy should include tactics to mitigate deficits compared to European environments, including lending to the real economy. The lessons of the crisis should have been learnt by now by banks and customers alike. Accountable lending is an absolute priority and it must be committed to by banks and customers, as it is the key to economic development involving the economy horizontally.