Draft Law on Bankruptcy of Natural Persons

On 24 March 2009, Draft Law on Bankruptcy of Natural Persons of the Republic of Lithuania (the “Draft Law”) was introduced and according to the Government’s program should be adopted at the end of 2009. Up till now, only legal persons can bankrupt in Lithuania, while individuals performing business activities are obliged to pay their debts till their decease. The Draft Law introduces a new institute in Lithuanian legal system and aims at protecting an insolvent natural person from impoverishment, as well as, to restore his ability to pay.

A number of natural persons perform business activities, for instance according to a business license. These natural persons are basically performing the same business activities as legal persons and the only difference is the form of the performance. From the competition perspective, natural persons undertaking business activities are in less favorable position than legal persons in Lithuania or natural persons of the other countries, where bankruptcy of natural persons is legitimate. Once bankruptcy of natural persons is validated, such individuals could expect that their debts might be discarded in the future and thus they could perform business activities legitimately or at least recover part of their debts.

The Draft Law suggests a regulation of bankruptcy proceeding of natural persons. If the Law on Bankruptcy of Natural Persons is adopted, individuals will have an opportunity to bankrupt or partly settle with their creditors. Bankruptcy proceedings could be initiated only on the grounds of natural person’s statement and only if natural individual at stake could not fulfill claim (claims) of the creditor (creditors) the total value of which exceeded 12 minimum monthly wages (current minimum monthly wage in Lithuania is LTL 800 (approx. EUR 230)). After launching bankruptcy proceedings, solvency restoration plan and schedules for fulfilling the claim (claims) of creditor (creditors) and settling other expenses would be prepared. Most of claims of the creditor (creditors) that remain unfulfilled after the natural persons’ assets have been sold, would be discarded and could be recovered according to the laws in force during 3 years period after the bankruptcy proceedings were closed.

Raidla Lejins & Norcous