Entrepreneurs increasingly choose consumer bankruptcy – lower costs and simplified procedure

The latest data from the Court Monitor and National Debt Register show that by the end of September this year, 331 corporations in Poland had failed. This is not much considering what is actually happening on the market. However, nearly 1,800 entrepreneurs declared consumer bankruptcy during this period. Why are Polish companies choosing this approach to bankruptcy?

Small entrepreneurs or civil partnerships face a choice and dilemma of whether to file for bankruptcy as a company, or as a consumer after closing down their business. It became possible thanks to a revision in 2020 of the “Bankruptcy Law” act. This amendment has added a provision to treat debtors who once ran a sole proprietorship in the same way as consumers. They can therefore declare bankruptcy on similar terms as natural persons, regardless of whether they are running or have run a business. And as can be seen, more and more are taking advantage of this.

Entrepreneur bankruptcy is more expensive

– The procedure related to the bankruptcy petition of an entrepreneur involves larger costs. The court fee and down payment currently amount to more than 8000 zlotys. To declare bankruptcy, proper funds or property, which will be sufficient to cover the costs of the bankruptcy proceeding and at least some of the creditors’ claims, must be secured – explains Przemysław Furmanek from Lege Restrukturyzacje Law Office.

In the case of consumer bankruptcy of a former entrepreneur, the application fee is 30 zlotys and is declared for each insolvent consumer, regardless of their assets. However, the popularity of consumer bankruptcy among entrepreneurs is not just due to lower costs. It also allows them to take advantage of elements of business bankruptcy, such as setting up a repayment plan and partial debt cancellation.

The liquidator can scoop up everything

– Consumer bankruptcy definitely has advantages over corporation bankruptcy. This is particularly true for small businesses where the former entrepreneur does not plan to quickly return to running the business. Unfortunately, such an entrepreneur, when declaring consumer bankruptcy, exposes himself to be banned from running a business for a period of one to ten years for failing to file a bankruptcy application within the statutory period – explains Przemysław Furmanek from the Lege Restrukturyzacje Law Office.

The expert also draws attention to another problem of business bankruptcy. During the bankruptcy proceeding, an entrepreneur wishing to make a living from his or her business encounters rules that do not explicitly provide an amount exempt from seizure by the liquidator. Therefore, in order to also discharge his debts, such an entrepreneur must after the procedure file a repayment plan application, which the court does not always agree to.