Amendment of the Code of Enforcement – can your enforcement proceedings get discontinued by it

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Part 2: Other changes following the amendment of the Code of Enforcement

 

  1. Discontinuation of prolonged but futile enforcement proceedings

So far, it has been possible to discontinue enforcement proceedings in fact only if the proceedings were unlawful. Now, the discontinuance will be possible also if the debt being enforced is unrecoverable. It will not be possible to discontinue enforcement proceedings on these grounds until one year after the effective day of the amendment (these provisions enter into effect as of 1 January 2022 and it will be first possible to discontinue proceedings as of 1 January 2023). If after six years of pending enforcement proceedings, the licensed enforcement agent finds out that the collected amount does not even cover the costs of enforcement proceedings, the licensed enforcement agent will propose discontinuation of the enforcement proceedings to the obligee.

If the obligee disagrees and wants to continue the enforcement proceedings instead, the obligee must make an advance payment for further continuation of the enforcement proceedings (in the order of hundreds of Czech crowns, the amount is determined by the delegated legislation). After the advance payment is made, the enforcement proceedings will go on for the next three years and the scenario may be repeated once again (request for approval of discontinuance of the enforcement proceedings, option to make an advance payment for the second time and continuation for the next 3 years).

After maximum twelve years (6+3+3), all futile enforcement proceedings will be discontinued, some of them even earlier.

Please note that the period of six years of pending futile enforcement proceedings will include also the period when the enforcement proceedings were conducted before the effective date of the amendment. As of 1 January 2023, it will be possible to begin discontinuing enforcement proceedings from 2017 – it is a so-called application of law with retroactive effect.

  1. First debt, then interest, and never vice versa

A reliable way to keep a debt spiral rotating is to attribute all collected amounts first to interest; this way, the principal will never get lower and it will never get repaid. The amendment introduces a change: the yields from the enforcement proceedings will first have to be attributed to costs of the court for enforcement and then directly to the principal, and only then to interest, after that to default interest and last to the obligee’s costs. This regulation provided by the Code of Enforcement will prevail over the Civil Code and over any agreements between the debtor and creditor.

  1. Negligible enforcement proceedings

Was the original principal CZK 1,500.00 or less and nothing has been collected in the last three years?

The obligee will be invited to make an advance payment to continue, otherwise the enforcement proceedings can be discontinued.

What about the creditors who get nothing when the enforcement proceedings get discontinued? After such discontinuation, the creditor will be entitled to compensation in the form of 30% of the claim which was subject to enforcement proceedings, in the form of discount from the income tax.

  1. Salary payers under the amendment

Under the amendment, an information obligation will be imposed on employers in the future, as they will be obliged, upon licensed enforcement agent’s request, to report not only the amount of the employee’s pay but also deductions from pay and the type of employment. Later, uniform forms are expected to be created for the communication between licensed enforcement agents and employers.

Salary payers making deductions from their employees’ pay will be able to claim a lump-sum reimbursement of costs (CZK 50.00) for the calendar month when they made such deduction. This applies to enforcement proceedings commenced after the amendment entered into effect.

  1. Enforcement proceedings with respect to personal property – distraint in a humane way

The objective of distraint should be to distrain personal property which can be effectively monetized, not to put pressure on the debtor by distraining their important household items.

It is prohibited by the amendment to distrain personal property with respect to childhood debts or from people receiving old-age pensions or disability benefits (second and third disability degree) or where the pension is below the minimum pay. Debtors can always avert distraint if they agree to make monthly payments from CZK 1500.00 to CZK 6000.00 (in addition to the amount already being lawfully deduced on a monthly basis). This option will apply to natural persons only.

  1. New obligations of licensed enforcement agents

The new obligations of licensed enforcement agents providing more protection to debtors and aiming to modernization of the sector are definitely interesting.

Licensed enforcement agents will be obliged to make audio records of all verbal communications with debtors (effective after one year from the effective date of the amendment). A debtor may request that their whole file be sent on a data medium.  Debtors should have access to all information about their respective enforcement proceedings to be able to get legal assistance, among other reasons. It will be helpful also to those who live 300 km far from the licensed enforcement agent’s office as they will be able to get the file on a CD or via cloud, free of charge.

Conclusion:

  • Some proposals which were presented have not been approved under the amendment, such as merger of debts. So far, debts of a single person can be collected by ten different licensed enforcement agents. The creditors can still choose their licensed enforcement agent as the licensed enforcement agents still have no specific territorial jurisdiction. The obligation of the obligees to make advance payments for costs of any enforcement proceedings have not been approved either.

 

  • We must add that the Chamber of Licensed Enforcement Agents will be filing a complaint with the Constitutional Court after the amendment has been approved. The Chamber challenges the approved retroactive effect (which will make it possible to discontinue also enforcement proceedings started before the effective date of the amendment under different conditions). The Chamber also believes that the extinguishment of the licensed enforcement agent’s right to reimbursement of costs in cases of discontinuation of enforcement proceedings under the amendment constitutes violation of the licensed enforcement agent’s right. After six years of work, the licensed enforcement agent would not be entitled even to the payment of minimum costs of enforcement proceedings.

 

  • Finally, we would like to add that changes of enforcement proceedings and reliefs to debtors were not brought only by the amendment but also by the covid pandemics. During the pandemics, distraints of personal property were temporarily suspended and it was permanently provided that licensed enforcement agents cannot collect debts from tax bonuses for children, severance pay is not regarded as a one-off pay in enforcement proceedings. The so-called childhood debts have also effectively ended and from July 2021, you can get a protected account at your bank.

If you are one of those fighting with enforcement proceedings, either as a debtor or as a creditor being afraid that their debt will not be collected, do not hesitate to contact this law office anytime. We will be glad to assist you with enforcement proceedings issues, including advice with respect to possible discharge from debts.

Cancellation of arbitration clauses in consumer contracts and termination of invalid enforcement proceedings (link to our article) also contributed a great deal to charting a way out of debt traps.

You can contact us via e-mail at info@advokatky.cz, or call 224498345.

 

Mgr. Jana Mlejnková, Lawyer

Pajerová Sedláčková ADVOKÁTKY s.r.o.

20 September 2021