A repayment plan after bankruptcy: what to do if money suddenly runs short

A creditor repayment plan usually means three years of regular payments, or even seven if the debtor was at fault in becoming insolvent. Life does not stand still during that time: illness, an accident, job loss or a long hospital stay can take away your income just when every instalment matters. Below is what the Bankruptcy Law provides for this situation and what it does not provide for.

Most people fear that the court will ‘extend the plan’. The real danger is different and much more serious: revocation of the repayment plan. If the bankrupt person simply stops meeting the obligations under the plan, the court may revoke it of its own motion or on a creditor’s application, unless the breach is minor or considerations of fairness or humanitarian grounds support continuing the plan. The consequence is severe: the liabilities are not discharged. All the progress made is lost, and the debts return.

The law offers two routes, and both require an application from you rather than silence.

• Changing the repayment plan. If you cannot meet your obligations, the court may, on your application and after hearing the creditors, change the plan. The repayment period may be extended by a further period of no more than eighteen months.
• Revocation of the plan with discharge. If your inability to carry out the plan is permanent and results from circumstances beyond your control, the court may, on your application, revoke the plan and discharge the outstanding liabilities. This is the opposite of the scenario in the previous paragraph, despite the similar name: the application and the reason make the difference.

Hence the only practical advice that can be given in general terms: apply before you fall into arrears, rather than afterwards. The difference between ‘I cannot pay and I am telling the court’ and ‘I stopped paying’ determines which of the two provisions above will apply at the end of the case.

An improvement in your financial position during the plan also has consequences. If it is significant and results from causes other than increased employment pay or income from work you perform personally, then any creditor, as well as the bankrupt person, may apply to change the repayment plan.

This means that an inheritance, gift, prize or one-off insurance payout is not automatically ‘yours without a worry’. A creditor may respond to such a payment by applying to increase the instalments. The risk is small for a minor payment and real for a large one.

The best protection for a repayment plan is a reserve that can cover an instalment in a bad month. It is usually built in three ways: putting aside a small amount each month, maintaining the ability to earn extra income, and life and health cover that pays a benefit in the event of illness or an accident.

The third option is sometimes offered to people after bankruptcy and can make sense, but it is neither free nor unconditional. Before signing anything, check four things:

• The premium reduces your current ability to keep up with the plan. If paying it leaves you unable to afford an instalment, the product works against the purpose for which you are buying it.
• Waiting period. For critical illness cover, the waiting period can run into months. In a three-year plan, this can consume a substantial part of the cover period.
• What is actually covered and what exclusions apply, particularly for conditions existing before the agreement was concluded.
• The effect of a payout on the plan: see the paragraph above. A large one-off benefit may prompt a creditor’s application to change the plan.

We do not sell policies and are not an insurance distributor. The above provides information about a product category and is neither an offer nor a recommendation. If you would like to speak to a licensed intermediary, mention it when submitting your case. We will connect you with an authorised partner and state clearly whether we receive any benefit from doing so.

If your repayment plan becomes unaffordable, time matters. We can analyse your situation and, if there are grounds, help prepare an application to change the plan. The court application is signed and handled by an authorised representative, a Polish legal adviser or advocate of your choice. Submit your case online; assessment is free.