10 thousand individuals – that’s the number of people declaring bankruptcy in just the first half of 2023 in Poland. Although there’s still some months until the end of the year, we can already talk about a historical record. Experts warn that in the face of economic recession, this trend will persist.
More than 45 billion in debt
According to the National Debt Register data, total debt of individual entities is currently 45.4 billion zlotys (approximately 10.8 billion USD). In the first quarter of 2023 alone, the arrears of Poles increased by more than 400 million. Already, 40% of people admit that they have loan installments, loans, or debts to repay.
6% of Poles are now struggling with late repayments of overdue installments or current bills. The Credit Information Bureau (BIK) regularly records an increase in the number of delinquencies in credit repayments over 90 days. Financial buffers are also being depleted, and fewer people report having any household savings.
Where does the debt come from?
The pandemic, hyperinflation, armed conflict beyond the eastern border, and increasing loan installments – the effects of several years’ events have hit regular consumers the hardest. In March, inflation in Poland reached a record 18.4%, the highest since December 1996. For two quarters we have recorded negative GDP growth results, which by definition means a technical recession has taken hold in Poland. For many people, the recent increases in interest rates have sometimes meant more than a doubling of the monthly loan installments.
Low levels of unemployment or increasing minimum wage may sound promising, but in reality, the purchasing power of money is decreasing, and the cost of living is drastically rising. The result? Poles are losing financial stability, and bankruptcy is increasingly becoming the only and best solution for them.
“Interest in consumer bankruptcy in Poland is clearly visible in the statistics of proceedings opened. The last time such records were noted was at the end of 2020. However, the cause was different at the time. It was a year when bankruptcy declaration laws were significantly liberalized” – says Jarosław Rembisz from the law firm Rembisz and Partners.
This trend is unmistakable. **In March 2023, the monthly number of individual bankruptcy announcements exceeded 2,000 for the first time.** Three months later, another record was shattered with over 1,800 consumer bankruptcies (in the entire year of 2022, this number was 15,000!). The average debt amount also increased from last year’s 18,500 to 19,200 zlotys.
Data shows that most of these people had financial problems long before declaring insolvency. Over half of them had been in the KRD (National Debt Register) for at least two years. Why did they wait so long? The most common fear associated with declaring bankruptcy is the loss of the ability to manage one’s own wealth. There is also a psychological factor – many people associate declaring bankruptcy with a sense of shame.
A large portion of Poles try to repay their obligations by taking out additional loans. As a result, they fall into a debt spiral from which it’s hard to escape. Consumer bankruptcy is an alternative to ongoing bailiff executions and a legal way to stop debt collection and get out of debt – explains attorney Jarosław Rembisz.
A very effective solution. There are only two “buts”
A person who declares consumer bankruptcy can achieve debt relief for the vast majority of their debt. This is to facilitate the start of a “new life” without debt. **However, Jarosław Rembisz warns against treating consumer bankruptcy as a standard method to overcome financial difficulties. An alternative could be a consumer arrangement, allowing them to negotiate with creditors to repay their obligations out of their own income. Unlike bankruptcy, consumer arrangements allow the debtor to retain at least some of their assets.
Experts also underline the increasing role of lawyers, on whom the success of the proceedings largely depends. Not only do they analyze the legal-financial situation, but they also prepare the application for announcing consumer bankruptcy, negotiate with creditors, represent the debtor in court and monitor the actions of the trustee. There are indications that the demand for such services will only grow in Poland. According to forecasts by the Central Economic Information Center, the number of insolvencies in Poland by the end of 2023 may even exceed 20,000. That’s 5,000 more than the previous year.
Source: Rembisz and Partners
