When an individual finds themselves in financial difficulty, they can essentially resort to two mechanisms, depending on whether the situation is irreversible, i.e. whether or not there are viable possibilities for their financial recovery.

If the debtor is in a situation of insolvency, which occurs when he is unable to fulfil his overdue obligations and is not solvent enough to settle his debts through negotiations with his creditors, he must file for insolvency.

The law stipulates that creditors can also request the insolvency of individual debtors, if they fulfil certain requirements.

With the declaration of insolvency, powers of administration and disposition of assets are passed from the debtor to the appointed Insolvency Administrator, who will be in charge of liquidating the debtor’s assets (if any) in order to pay his creditors.

The declaration of insolvency also has the effect to suspend any enforcement proceedings that affect the debtor’s assets, which become part of the insolvent estate. Within the insolvency proceedings, it’s possible to require the discharge of remaining liabilities, which allows the debtor to be released from almost all the debts that are not paid within the insolvency proceedings, within a period of 3 years.

On the other hand, if the debtor is in financial difficulty but is susceptible to recovery, i.e. if he faces serious difficulties in fulfilling his obligations on time but can continue to comply his obligations if he manages to negotiate more favourable payment terms with his creditors, he should apply for a PEAP – special procedure for payment agreement.

The aim of the PEAP is to give the debtor the chance to negotiate a global payment agreement with his creditors, that will allow him to continue to fulfil his obligations without the need to liquidate his assets.

With this type of procedure, the debtor never loses his powers to administer his assets, and the figure of the Administrator only remains for the duration of the legal proceedings. As with insolvency proceedings, in this type of procedure any enforcement proceedings are suspended and will not be resumed if negotiations with creditors are successful, and the plan is approved.