Filing for individual bankruptcy

Question: In other countries, particularly the United States, there are bankruptcy laws pertaining to individuals.  Is there such a law in the Philippines? – asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.

Answer:  There is such a law in the Philippines and it is called the Financial Rehabilitation and Insolvency Act or FRIA.

Republic Act No. 10142 is a law providing for the rehabilitation or liquidation of financially distressed enterprises and individuals.

Let us focus on the provisions of the law for individuals.

Chapter VI of FRIA talks in particular about the insolvency of individual debtors.

FRIA presents three scenarios on dealing with the insolvency, namely: suspension of payments; voluntary liquidation and involuntary liquidation.

Under suspension of payments, an individual debtor may file a (verified) petition that he be declared in the state of suspension of payments by the court of the province or city in which he was a resident for six months prior to the filing.

The minimum evidence to be presented would be: (a) a schedule of debts and liabilities; (b) an inventory of assets; and (c) a proposed agreement with his creditors.

The evidence must show that the individual debtor has sufficient assets to cover all of his debts but not the capacity to meeting the payment of his obligations when they fall due.

The evidence needed for suspension of payments underscores the importance of tracking one’s personal finances through the generation of at least yearly balance sheets and income statements.

Combined with the use of financial ratios, an individual can easily say whether trouble is brewing on the horizon or if financial goals are being met.

Back to suspension of payments, if the court finds merit in the petition filed, it will issue an order calling for a meeting of all creditors named in the schedule of debts and liabilities not less than fifteen days and not more than forty days from the date of the order.

In addition, the court may issue an order suspending any pending execution against the individual debtor except in situations where the properties are held as security by secured creditors.

This suspension of pending execution will lapse when three months have passed without the proposed agreement being accepted by the creditors or as soon as the proposed agreement is denied by the court.

The presence of creditors holding claims amounting to at least three-fifths or sixty percent of the liabilities of the individual debtor is necessary for holding a creditors’ meeting.

The proposed agreement with creditors will be approved if: (a) two-thirds of the creditors voting agree to the proposition; and (b) the claims represented those voting in favor of the proposed agreement amount to at least three-fifths of the total liabilities of the individual debtor.

On the voluntary liquidation, if an individual has insufficient assets to cover his liabilities, which are in excess of five hundred thousand Pesos, he may apply to be discharged from his debts and liabilities by filing a (verified) petition with the court of the province or city in which he was a resident for six months prior to the filing.

The pieces of evidence needed are his schedule of debts and liabilities and inventory of assets. If the court finds merit in the petition, it will issue a liquidation order.

Among others, the liquidation order involves the liquidation of the properties of the individual debtor with the sheriff taking possession and control of all the properties of the individual debtor, except those that may be exempt from execution.

Under involuntary liquidation, any creditor or group of creditors with a claim or claims totaling at least P500,000 may file a (verified) petition for the liquidation of the individual debtor with the court of the province or city in which the individual debtor resides.

Among the allegations to be stated in this petition for involuntary liquidation are that the individual debtor is a flight risk and/or intends to defraud his creditors through various means.

If the court finds merit in the petition for involuntary liquidation, it will issue a liquidation order.

They say the devil is in the details. That is why I advise that you study well the entire law including its implementing rules and regulations or get a lawyer to help you sort things out.

So far we have discussed solving bankruptcy in court or under the law of man.

The best strategy is really to solve bankruptcy under the law of God. Matthew 5:25-26 states: “Come to terms with your opponent in good time while you are still on the way to the court with him, or he may hand you over to the judge and the judge to the officer, and you will be thrown into prison. In truth I tell you, you will not get out till you have paid the last penny.”

If you want to know more about solving debt problems especially when debt collectors are already on your heels or if you want to help somebody in that predicament, check out our advocacy at EnRich™ Getting Out of Debt or GOOD program at www.personalfinance.ph/good.html.

(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected]. To learn more about value investing strategies, attend the 8th Accredited Financial Analyst program on June 4-July 9. For more details, inquire at [email protected] or text <name><email><AFA> at 0917-9689774.)