Czech Creditor Satisfaction with Debt Relief Under the Insolvency Act of 2008

Abstract

The aim of our survey is to determine creditors’ satisfaction with debt relief. Czech household debt has been increasing since 2000, (Osvaldova, Mores, Mensikova, Creditreform, 2013) the result of a broadening supply of credit from the financial sector, an increasing standard of living connected with housing debt financing, and the general tendency of Czechs to prioritize a consumer lifestyle over savings. The absence of reasonable financial planning in combination with the recent economic crisis has trapped many debtors in a debt spiral. A fundamental problem is the emergence of the debt trap, where the debtor attempts to solve a present lack of funds by taking further loans, usually under duress and unfavourable conditions. Applicants arrive at a situation when banks are no longer willing to provide them with loans. Then the only option is to turn to financial companies not supervised by the Czech National Bank. Conditions for borrowing financial resources from these companies are often markedly unfavourable, and loan fees and the interest rates charged frequently result in loans that far exceed by many times the amount borrowed. Debt relief is a way of settling citizens’ inability to repay. This option is provided by the state for debtors to free themselves of previously unpaid debts after five years or earlier (if 100 % of the debt is paid) and start with a clean slate. Debt relief helps citizens who wish to actively work to resolve their adverse situation and repay their Int Adv Econ Res (2015) 21:349–350 DOI 10.1007/s11294-015-9529-9