Insolvent

What does insolvent mean?

When you are unable to pay back your creditors, you are insolvent. Whether you will be legally declared insolvent, is determined by the bailiff’s court.

If you are declared insolvent, your creditors will not be able to summons you before the bailiff’s court again within the next six months. This gives you the opportunity to get a grasp of your financial situation.

Therefore, when you have problems paying your bills, it can be advantageous to be declared insolvent. If you do not have enough resources to pay off your debt, the bailiff’s court can help you with making a plan and negotiating agreements with your creditors.

Technically insolvent

If your debt is higher than your wealth, you are technically insolvent.

The reason for it being called technically insolvent is, that you are only insolvent on paper, if you have to repay all of your debt at the same time. Thus, you can be technically insolvent, even though you are capable of continuously paying your debt. This can apply, for instance, when you have a good income or are about to start a well paid job. It also means that technical insolvency is not necessarily a problem.

Technical insolvency commonly happens, when you take a housing loan to buy property and the property loses value afterwards.

How do you get declared insolvent?

The bailiff’s court can declare you insolvent.

When a creditor wants to collect the debt you owe them, you will typically receive a summons to the bailiff’s court. If you do not react to this, they can send a bailiff to deliver the summons in person at your residence. Otherwise, they can also choose to call you or send it by mail.

Alternatively, they might send a bailiff to meet you at your residence or your company, in case you are the owner, and deliver the summons in person. If they fail to establish contact with you, the summons will be handled by the police.

The summons will contain all relevant information, such as who is summonsing you, how large the debt is and when the hearing takes place. You have to appear before the bailiff’s court at the time specified in the summons. If you have questions about the debt, you have to consult with the bailiff’s court.

Proceedings in a bailiff’s court

In the bailiff’s court it is determined, whether you are insolvent. If so, then the court will declare you insolvent. The court’s decision is based on your capability to repay your debt or if you own assets that you can use to repay the debt.

The purpose of the hearing is to reach an agreement on the best way for you to repay your debt. You can not be forced to enter into an agreement at this hearing.

The following will be present at the hearing: the bailiff, you and possibly a creditor (though typically on the phone). While speaking before the bailiff’s court you are subject to criminal liability. That is to say that you can be prosecuted if you lie in front of the court.

The proceedings themselves are usually short. A hearing often lasts between 5 and 10 minutes. This is because the court reviews the information sent to them by you and your creditor ahead of time. Nonetheless, it can still be a good idea to bring your annual tax return, paychecks, a budget and relevant documentation of your debt, like promissory notes e.g.

After the bailiff’s court

In case the bailiff’s court has declared you insolvent, your creditors can not summons you there again for six months. This is supposed to give you sufficient time and space to get a grasp of your financial situation.

Thus, you will not be contacted or prosecuted by your creditors in that time span.

Creditors are only allowed to summons you before a bailiff’s court one at a time. Your other creditors will not automatically be notified about your being declared insolvent. However, it can be beneficial to let them know, since they will also stop contacting you for the duration of your insolvency.

After this period of six months, they will - unless you already have paid them back or settled your debt otherwise - be able to request you to appear in a hearing in front of the bailiff’s court. That means, that being declared insolvent takes away their most efficient means of collecting your debt to them.