Definition of Bankruptcy

A bankruptcy application is submitted to the district court, and both the debtor and the creditors can submit it (provided they meet the conditions listed in sections 17 and 7 respectively of the Bankruptcy Ordinance (New Version), 1980. A debtor will submit a bankruptcy application when they are unable to meet their accumulated debts, and enforcement proceedings are initiated against them. Often, a creditor will resort to bankruptcy proceedings when they fear the debtor may abscond with their assets.

Upon submission Bankruptcy Application, an asset consolidation order is issued against the debtor, and all proceedings against them, including enforcement proceedings, are frozen. Additionally, a trustee is appointed whose role is to gather all the debtor’s assets, liquidate them, and act to collect the debtor’s debts.

The trustee conducts an investigation into the debtor’s financial capacity and determines the monthly amount the debtor must pay each month until the completion of the process. Furthermore, due to the concern that the debtor might attempt to hide assets, the trustee has the authority to cancel transactions/gifts made by the debtor even before the start of the bankruptcy process. There are many restrictions imposed on a bankrupt individual, including: a travel ban, being declared a special restricted client, prohibited from using credit cards, and unable to hold an interest in a corporation. Additionally, upon the issuance of the consolidation order and the declaration of bankruptcy, the debtor’s name is published in the press and records.

The bankruptcy process concludes with the receipt of a “discharge order.” The discharge order releases the debtor from all their debts and allows them to start anew.

Definition of Debtor with Limited Means

When a debtor lacks the financial capacity to meet their debts, and enforcement proceedings have been initiated against them, they can request the head of enforcement to declare them as a debtor with limited means and spread the payments for the debts in the enforcement files against them.

After the declaration of a debtor with limited means, if multiple enforcement files are pending against them, there is a process of “File Consolidation” – all proceedings against the debtor are managed together in a single enforcement file. The advantage is significant, as the debtor does not need to deal separately with each creditor, avoiding all the associated hassle.

Generally, as long as a debtor with limited means meets the monthly payments set for them within the consolidation file, all proceedings initiated against them are suspended.

Upon declaration of a debtor with limited means, the following restrictions are imposed: a travel ban is issued against them, the debtor is declared a special restricted client (their bank accounts become restricted), they are prohibited from using credit cards, and a debtor with limited means is not allowed to hold an interest in a corporation without the approval of the head of enforcement.

A key difference between the two processes is that while in bankruptcy proceedings, from the day the consolidation order is issued against the debtor, no further indexation and interest differences are added (unless the trustee decides otherwise), upon the declaration of a debtor with limited means, all
indexation and interest differences on the debt continue to accumulate in the enforcement file.

The content of this site is intended for informational purposes only, it does not constitute legal advice and is not a substitute for legal advice provided by an attorney.