Remission of residual debts in bankruptcy:
the deadline for filing the application must disappear

October 2021 – Provided a number of conditions are met, the court can grant a remission of residual debts to a bankrupt entrepreneur to enable him to make a fresh start. However, the entrepreneur has only three months in which to submit his application. After this period, no further remission can be granted. The Constitutional Court considers this deadline to be very strict.

Remission replaces excusability

In 2020 and 2021, the government has taken several measures to avoid a wave of corona bankruptcies. However, there are fears that the abolition of these measures will lead to a wave of bankruptcies. Does an entrepreneur who goes bankrupt have to spend the rest of his or her life paying off debts?

Before 1 May 2018, a bankrupt entrepreneur could be 'excused'. This simply meant that any debts that remained unpaid after the bankruptcy was liquidated were suspended.

In mid-2017, a Book XX was inserted into the Economic Law Code which introduced remission in place of excusability. The bankrupt and his co-debtors (e.g. his spouse) could thus obtain a full remission of the debts that remained unpaid after the closure of the bankruptcy.

But there are obviously certain conditions to be met.
Firstly: the remission of residual debts is only possible for a) natural persons, who b) have been declared bankrupt. It is therefore not possible for companies (which are indeed liquidated in bankruptcy).
Secondly: the bankrupt person has to apply to the court for the handover of the company. In practice, the company court will grant the remission unless the public prosecutor objects (this will be the case if serious and characterised faults have been committed in the bankruptcy) or in case of a claim by third parties.

There are a number of formalities to be fulfilled when applying, but the main one is undoubtedly the time limit: the bankrupt has three months after the publication of the bankruptcy judgement to submit the application. Without this application, the court cannot grant any remission. And after these three months, no more applications can be made.

The time limit is too strict

In April, the Constitutional Court was called upon to consider the consequences of the late submission of an application for remission.
The Court made three important considerations in this respect.

Firstly, the Court does not find any reason in the preparatory works of the law for the fact that an application has to be submitted, let alone that it has to be submitted within three months. The Constitutional Court usually also examines the reasoning adopted by the legislator when enacting a law and then assesses whether this reasoning is logical and in line with constitutional principles. But when this reasoning is not there, it is rather difficult.

Secondly, the Court looks at things in a broader perspective: why was excusability replaced by remission? The answer to this question, however, is in the preparatory work: namely to promote second chance entrepreneurship. A bankruptcy is not considered a failure, but an experience. The Court therefore fails to understand how a foreclosure period - and more generally - the formalism of the application for remission contributes to this objective.

Thirdly, the Constitutional Court considers that the moment when a bankrupt applies for remission has no influence on the management of the estate, the declaration and verification of claims or the liquidation of the bankruptcy. Interested parties (the public prosecutor, the receiver or third parties) can lodge an appeal against a remission from the publication of the bankruptcy judgment, even if the bankrupt has not yet requested a remission at that time. A time limit is therefore not directly relevant either.

Legislative intervention is required

The Court concludes that exceeding the foreclosure period has disproportionate consequences for the bankrupt natural person, but also for his or her spouse, former spouse, legal cohabitant or former legal cohabitant who is personally liable for the debts incurred by the bankrupt during the marriage or legal cohabitation.
The provision in question (Article XX.173. § 3 CRC) violates the Constitution and can therefore no longer be applied. As long as the legislator has not intervened, the three-month period is considered null and void.

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