The Hungarian Parliament has adopted a new
legal regime setting out debt settlement procedures for private
individuals. The act will enter into force on 1 September
2015, and will have a huge impact on the business of banks and
financial undertakings in Hungary.
The new regime is mainly aimed at non-performing housing loans;
however, it does not exclude any kind of debt that is owed by a
private individual who is a Hungarian tax resident. The
private individual debtor may initiate the debt settlement
procedure under the following conditions: (i) the aggregate amount
of the debtor's outstanding debts exceeds HUF 2 million (approx
EUR 6,600), but does not exceed HUF 60 million (approx EUR
200,000), (ii) the debts exceed the value of the debtor's
assets (including the aggregate income expected in the upcoming 5
years), but do not exceed double the value thereof, (iii) at least
80% of the debts are acknowledged or undisputed by the debtor, (iv)
at least one debt is overdue over 90 days, and the amount of such
debt exceeds HUF 500,000 (approx EUR 1,650), (v) there are not more
than 5 subordinated debts (i.e. the creditor is (x) the co-debtor
or the security provider, (y) a close relative of the debtor or (z)
a company in which the debtor or the co-debtor is an executive
officer or has at least 5% interest), (vi) the debts include at
least one consumer loan debt, or a loan that relates to the
debtor's private business, and (vii) none of the debts stems
from an enforceable court decision whereby the liability of the
debtor was based on 'piercing the corporate veil'.
The debtor may initiate debt settlement both outside and within the
scope of a court procedure. If a financial institution (as
main creditor) has provided a housing loan to the debtor (by way of
mortgage backed loan or financial leasing), the debtor must first
initiate out of court procedures by delivering a written notice to
the main creditor. The out of court procedure is coordinated
by the main creditor. The procedure aims at reaching a debt
settlement arrangement. The main creditor must prepare the
draft of the arrangement together with the debtor, and the debtor
delivers the draft to the other creditors and obligors (if any).
All creditors must agree on the debt settlement arrangement within
120 days from the receipt of the application (90 days if only the
main creditor is concerned as creditor). During the procedure,
creditors may enforce their claims only within the debt settlement
procedure, and may not terminate the loan agreement.
Nevertheless, the creditors do not have to keep the loan facilities
available or to disburse loans.
For the sake of the court procedure, a new authority, the Family
Bankruptcy Service, will be set up. The debtor must apply for
debt settlement at the Family Bankruptcy Service which will forward
the application to the court. The Family Bankruptcy Service
will appoint a family administrator who will be in charge of the
procedure. The family administrator will have certain powers
over the assets of the debtor (e.g. the debtor may have only one
bank account, and only the family administrator will have powers of
disposal over such account). The family administrator
prepares the debt settlement arrangement (together with the
debtor), over which the creditors decide by voting. A simple
majority is required; however (i) the creditors are classified and
each class has a different voting multiplier (e.g. a privileged
creditor is allocated 20 votes after each HUF 20,000 claim (i.e. a
HUF 1 million privileged claim gets 1,000 votes), whereas
subordinated creditors receive only 1 vote per HUF 20,000 (i.e. a
HUF 1 million subordinated claim gets only 50 votes)) and, (ii) the
debtor, the co-debtor and the main creditor have veto rights.
The debt settlement arrangement must then be approved by the court,
and it is binding on all creditors. If no agreement is
reached within 150 days, the family administrator will start to
prepare the 'debt settlement plan', which aims at the
liquidation of certain assets of the debtor and distribution of the
proceeds among the creditors.
Although the act enters into force on 1 September 2015, the debt
settlement procedure will be available only to certain debtors
(mostly those having FX-based housing loans). Hungarian
financial institutions will have to adapt their internal procedures
with haste in order to perform the tasks under the new
regime.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.