Extrajudicial settlement and judicial debt settlement, personal bankruptcy - finding a way out of the inability to pay
The extrajudicial settlement takes place prior to the judicial debt settlement proceedings. In the case of an extrajudicial settlement, an attempt is made to regulate all creditors in a comprehensive agreement. The aim of the extrajudicial settlement is therefore to bring about debt settlement in a way that includes all the creditors without involving the courts.
The extrajudicial settlement is also termed the so-called “silent settlement”, as it has the advantage that it does not show up in public registers.
The extrajudicial settlement means that the debtor attempts, without involving the Court, to extricate himself or herself from the state of inability to pay. Taking as a starting point the civil law principle of private autonomy, it is the case that, at this stage of the proceedings, no creditor can be forced to be subject to such an attempt at settlement.
In practice, creditors accept an extrajudicial solution mainly in those cases where they assume that they will receive more if the debts are settled extrajudicially than they can hope to receive in judicial insolvency proceedings.
In a successful extrajudicial settlement, all the creditors voluntarily waive a part of their claims.
Example of a settlement offer:
The debtor offers the creditors a one-off payment or a regular amount to be paid over an extended period of time (e.g. between 5 and 7 years). Should this total amount offered to the creditors amount to, for example, € 9,000.00, in the event of an assumed indebtedness of € 60,000.00 this corresponds to 15%. Every creditor will receive this quota during the payment period.
Acceptance and effect:
The extrajudicial settlement is deemed to have been accepted if each individual creditor agrees to the offer. Should even just one creditor reject it, the settlement fails to materialise.
Judicial debt settlement:
At the beginning of 1995 the judicial debt settlement procedure was introduced in Austria. Since this year, the opportunity exists, not only for companies, but also for private individuals, to be released from the debt trap. This debt settlement procedure is termed “private bankruptcy” in everyday language.
In the first year of the private bankruptcy, over 900 applications for the institution of insolvency proceedings were filed, in the year 2013 it was approx. 10,400 applications. Since 1995 there have been a total of 124,937 applications for the institution of debt settlement proceedings and 108,250 such proceedings instituted.
Should the above-mentioned extrajudicial method of debt settlement fail, the debtor may file such an application for judicial debt settlement or release from debt with the Court having jurisdiction for it. Judicial debt settlement: may thus only be initiated based on an application for insolvency filed by the debtor (“personal application”). The law does not grant creditors any corresponding power to file an application.
The aim of the debt settlement procedure is to enable honest people who are over-indebted to get off to a new start without debts. Around 70% of the proceedings end with a payment schedule; 30% end in the absorption procedure.