Inadequate borrowing and unexpected exchange rate fluctuations have driven many people into the trap of the debt trap, which does not seem to lead the way.
Hungarian law is painfully lacking in the institution of private bankruptcy similar to that of corporate bankruptcy.
If a company is in financial difficulty, you can apply for bankruptcy protection. During bankruptcy protection, creditors must agree with the bankruptcy petitioner who, during this time, attempts to straighten out a redundant supervisor by getting rid of unnecessary things. Streamline your costs, expenses, and revenue.
If this fails, the company will be wound up after the stipulated time, and creditors will only be compensated for the remaining assets.
The business owner is not liable for any further repayment of the loans
The institution of private bankruptcy, which has been available in many parts of the world for decades, works like this to relieve trapped debtors of the pressure of executives for a temporary period, bringing their finances under the supervision of a seconded caretaker. The caretaker monitors that the debtor does not borrow, rationalizes his expenses, sells his assets for sale and clears his creditors.
If the creditors are not satisfied during the transitional period, enforcement may come. (This is the same as winding up in the life of a company.) The money they make goes to the creditors and the debtor can start a new life. Your liability for this current situation would be limited in time.
Private bankruptcy is a lengthy and often expensive process, but in the end, the person concerned, like companies, can be relieved of their credit in a few years.
What is important to emphasize is that private bankruptcy is not a credit waiver, but an agreement between the lender and the lender, which presupposes full cooperation between the debtor.
“free pass” right for secured loans
This means that the borrowers of covered loans (typically real estate mortgages) will be free of any further charges after the foreclosure. The rationale for this provision is that the bank must be satisfied with the ownership of the collateral it has requested. Nothing prevented him from seeking additional collateral before disbursing the loan, he stated that the value of the collateral was sufficient.
In contrast to these practices, today, in Hungary, a borrower with a mortgage can find himself in a credit trap for the rest of his life. The loan does not expire, and they can take most of their salary or pension for the life of the debtor. In most cases, the amount deducted from your salary is enough for the executive fee and interest, often not even that. So you have no prospect of getting rid of the consequences of a bad decision once, except for emigration from the country.
Unfortunately, more and more people are moving and moving further afield to start their lives again. Therefore, it would be important for debtors to have some hope and prospects of getting out of credit. Even if the murder is time-barred, the debt would have to be put on a maximum term.
Therefore, in the long run, banks would also be interested in the introduction of private bankruptcy, as at present debtors are merely hiding from enforcement and often do not cooperate with the banks in any way because they are not gaining any money.
Of course, in the case of a private bankruptcy, often only 20-30% of the loan is repaid, but this is still more than what banks sell to debt collection companies.
Banks are protesting against private bankruptcy
Arguing that this would trigger a further wave of insolvency among debtors who would perceive the private bankruptcy as another bailout and reduce their willingness to pay.
There is truth in this reasoning, as it would be important to determine how long the debtor has to stand up for the loan and work with the chartered supervisor. In most countries, this stage is between 3 and 12 years, typically 3-5 years.
Despite the problems surrounding the introduction, it is important to find a solution that is reassuring to everyone as soon as possible, given the large number of stakeholders and the total disarray.
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