Romania needs personal bankruptcy law

Publish date: 25-03-2009
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Romania needs legislation for individual bankruptcy, as a measure of protection against foreclosure, according to insolvency specialists, who are concerned about grim estimates regarding unemployment. Such legislation would allow people who can no longer pay their debts to be protected by the court, thus escaping foreclosure and able to reschedule their payment for several years.

For instance, take a family with a monthly RON 6,000 (€1,630) income in 2008, of which 40 percent was used for household expenses and the remaining 60 percent to pay a mortgage and monthly installments for a car and household appliances. However, due to the depreciation of the leu, their income is worth 30 percent less in euro, to which is added inflation and higher interest rates on loans. During this economic crisis, one or both earners in the family could lose their jobs at any time. The above scenario could affect many Romanians, as the Labor Ministry is expecting the number of unemployed to double by the end of the year. "If such legislation is not passed in Romania, it will be an economic and social disaster, given that since the beginning of 2009 insolvency proceedings were launched against some 9,000 companies in Bucharest, and these are not all SMEs [small and medium-sized enterprises]," according to the Vice President of the Reorganization and Insolvency Practitioners Union (UNPIR), Gheorghe Piperea.

Romania, Bulgaria and Hungary are the only Eastern European countries which lack personal bankruptcy legislation. The Hungarian government recently announced that it is analyzing a draft law on the issue that is set to be put into effect no earlier than next year.

Current insolvency legislation in Romania is only applicable to companies. In the U.S. and many European countries, however, the law allows individuals to declare bankruptcy.

Insolvency practitioners say that discussions regarding such legislation took place in the past, but that lenders were against this. Bankruptcy would give debtors more protection and make their assets harder to foreclose. "Romania does not have a tradition of personal bankruptcy. We have insolvency legislation, which was issued only two years ago. I do not believe this is the right time for such a change," Adrian Vasilescu, Advisor to Governor of the National Bank of Romania (BNR), told Business Standard. "As far as I know, the National Bank did not participate in discussions on such a draft law," he added. At the end of January, arrears of individuals and companies totaled RON 3.53 billion (€822 mln), some 23 percent higher than in December 2008. The ratio of debts to total loans was 1.7 percent, compared to 1.44 percent month-on-month.

Business Standard

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