THE Cabinet yesterday gave the nod to the fourth of five government bills comprising a package of bankruptcy-related legislation.
Collectively known as the insolvency framework, the bills are designed to update and amend personal and corporate bankruptcy laws to help borrowers restructure their debt. Enactment of the new legislation, designed primarily to reduce banks’ exposure to bad loans, is an obligation stemming from Cyprus’ bailout agreement with international lenders.
Three other bills have already been submitted to the House. One introduces and regulates the profession of insolvency practitioners, another deals with debt restructuring of viable businesses (examinership) and the third amends current liquidation laws.
The fourth bill approved on Wednesday concerns personal repayment schemes and debt forgiveness, and will now be forwarded to parliament. The fifth and final bill, concerning the insolvency of natural persons, has been completed but is currently being reviewed by the troika of lenders.
In order to qualify for a personal repayment scheme, an individual’s total debts (secured and unsecured) must not exceed €300,000, and the value of their primary residence must be €250,000 at the most.
Additionally, debtors must demonstrate they are unable to repay their debts due to worsening of their financial situation caused by events beyond their control, and these events must have occurred no earlier than two years before applying for the scheme. Debtors must also prove that their income has taken a hit of at least 25 per cent due to these events.
Under the same bill, a person eligible for debt forgiveness must have debts no greater than €5,000, a monthly net income of €100 or less, assets valued at €400 or less, and be a permanent resident of the Republic.
Persons are ineligible for debt forgiveness if 25 per cent or greater of their debts were accumulated in the last six months prior to the date of application.
The bill is geared at giving a second chance to people who have fallen on hard times, said deputy government spokesman Viktoras Papadopoulos.
“It will allow people facing bankruptcy due to the financial crisis to re-engage and sort out their finances in such a way as to avoid declaring bankruptcy as was the case under the previous legislation, which was black or white,” he added.
The Cabinet also approved additional legal regulations governing the work of insolvency practitioners.
The so-called insolvency framework is seen by opposition parties as a safety net for vulnerable borrowers and home owners. The parties have warned that they will suspend the enforcement of foreclosures until satisfactory bankruptcy laws are enacted.