Growing debts, recovery carried out by bailiffs, seized accounts or a company's inability to pay its creditors on time can lead to long-term legal and financial consequences. When faced with such a situation it is important to assess not only the amount of the debts, but also their nature, the property held, the income received and the possible legal ways of resolving the problem.
In Lithuania the insolvency of natural and legal persons is regulated differently. For a natural person, bankruptcy proceedings may provide an opportunity to restore solvency and, once the approved plan has been duly performed, to be released from part of the remaining debts. A company's financial difficulties may be resolved in restructuring or bankruptcy proceedings.
The law firm "Ernestas Bušmovičius ir partneriai" advises natural persons, company managers, shareholders and creditors, prepares procedural documents and provides representation in bankruptcy and restructuring proceedings.
The bankruptcy of a natural person, sometimes called personal bankruptcy, is a court-supervised procedure intended to restore the solvency of a person who is acting in good faith but is no longer able to perform their debt obligations.
Under the regulation currently in force, a natural person is regarded as insolvent where they are unable to perform debt obligations whose payment terms have fallen due and whose amount exceeds 25 minimum monthly wages (25 MMW). In establishing this condition, creditors' claims which under the law cannot be written off are not taken into account.
The amount of the debt alone is not sufficient. The court also assesses:
Therefore, even debts exceeding 25 MMW do not in themselves guarantee that personal bankruptcy proceedings will be opened.
Bankruptcy proceedings may be relevant where income and property are insufficient to cover the debts, where recovery is being carried out through bailiffs, where loans or credits are overdue, where the person has acted as a surety for another person's obligations, or where the debts arose from carrying out individual activities.
Personal bankruptcy proceedings can be divided into several main stages:
The solvency restoration plan is the principal document of personal bankruptcy proceedings. It must provide for realistic measures allowing the interests of the bankrupt person and those of the creditors to be reconciled.
The plan usually sets out:
Under the legal regulation in force, the duration of the implementation of a solvency restoration plan is generally three years. The whole bankruptcy process may take longer, since the hearing of the application, the approval of creditors' claims and the preparation of the plan take place in addition.
During the proceedings the person must cooperate in good faith with the insolvency administrator, provide information about the income received and the property held, and duly perform the approved plan. Concealing income or property and failing to perform other duties may become grounds for discontinuing the bankruptcy case.
Once the solvency restoration plan has been successfully performed, the remaining unsatisfied creditors' claims are generally written off; however, personal bankruptcy does not mean that all debts are cancelled.
Under the regulation in force, claims are not written off in respect of:
Before commencing bankruptcy proceedings it is necessary to establish the legal nature of each debt. Only then is it possible to assess objectively which of the remaining obligations could be written off once the proceedings are completed.
The opening of bankruptcy proceedings does not mean that all of the person's property is automatically and immediately lost. However, the proceedings also do not guarantee that the family home or other valuable property will be preserved.
What happens to the property depends on:
If the home is mortgaged to a bank or another creditor, the terms of the loan, the mortgage and the solvency restoration plan must be assessed separately. It is not possible to guarantee in advance that pledged property will be preserved.
A legal person is regarded as insolvent where it is unable to perform its property obligations on time or where its liabilities exceed the value of its assets. Once signs of insolvency have been established, it is necessary to assess whether the company is still viable and able to continue its activities, or whether bankruptcy proceedings must be initiated.
A company manager who notices financial difficulties must assess the company's condition in good time and take the steps laid down in the Law on Insolvency of Legal Persons. A late response, continuing loss-making activities or infringing creditors' interests may raise the question of the manager's civil liability.
Legal assistance may be needed in relation to:
Restructuring is intended for a legal person that is in financial difficulty but viable and has a genuine possibility of continuing its activities and restoring its solvency.
During restructuring it is possible to change the time limits for performing obligations, to agree a debt payment schedule, to reorganise the activities, to sell part of the assets, to seek additional financing and to conclude agreements with creditors.
Restructuring is not suitable for every company. Before commencing the process it is necessary to assess the viability of the activities, the financial forecasts, the position of the creditors and the realistic possibility of implementing the restructuring plan.
Where the conditions laid down by law are met, the bankruptcy proceedings of a legal person may be conducted out of court. The decision to commence such proceedings is taken by the creditors.
Out-of-court bankruptcy may reduce the number of court disputes and give creditors more opportunities to decide the essential questions of the proceedings directly. However, before choosing this route, any ongoing court disputes, recovery proceedings, the position of the creditors and other circumstances laid down by law must be assessed.
A debtor's insolvency does not extinguish a creditor's right to defend its interests. Bankruptcy and restructuring proceedings are subject to special time limits for submitting, approving and satisfying creditors' claims, so it is important to act in time.
We represent creditors in relation to:
Bankruptcy is not the only way of resolving financial difficulties. Before initiating proceedings it is worth assessing whether, in the particular situation, it is possible to reach an agreement with the creditors and avoid bankruptcy.
Possible alternatives:
The appropriate solution depends on the nature of the debt, the property, the income, the number of creditors, any recovery proceedings already commenced and the realistic possibilities of performing financial obligations in the future.
A bankruptcy attorney helps to assess whether bankruptcy or restructuring proceedings are legally well founded and practically appropriate in the particular situation.
We provide the following legal services:
Before we begin providing services we assess the information submitted, the possible solutions, the prospects of the proceedings, the risks and the expected scope of work.
The law firm "Ernestas Bušmovičius ir partneriai" has been operating since 2005. We represent clients from Lithuania and abroad who are dealing with legal matters arising in Lithuania.
Our working principles:
No. The amount of the debt obligations is only one of the conditions. The court also assesses the person's ability to pay the creditors, the causes of the insolvency, good faith, the property, the income and the other criteria laid down by law.
The duration of the implementation of the solvency restoration plan is generally three years. The whole process may take longer because of the hearing of the application, the approval of creditors' claims and the preparation of the plan.
No. The law provides for claims that are not written off, including child maintenance, damage caused by a criminal act, certain fines payable to the State and certain claims secured by mortgage or pledge.
This depends on the value of the home, any mortgage, the creditor's claim, the solvency restoration plan and a possible agreement with the creditor. It is not possible to guarantee in advance that the home will be preserved.
No. An intention to apply for bankruptcy does not in itself produce the legal consequences of bankruptcy proceedings. Restrictions on recovery apply only on the grounds laid down by law and at the corresponding stage of the proceedings.
Restructuring seeks to preserve a viable company, to reorganise its obligations and to restore its solvency. Bankruptcy is generally applied where there are no longer any realistic possibilities of restoring the company's solvency and continuing its activities.
The price of the services depends on the complexity of the situation, the number of creditors, the volume of documents, the type of proceedings and the representation required. The scope of work and the payment terms are agreed after assessing the particular situation.
If you are considering personal bankruptcy, are facing the insolvency of a company, wish to commence restructuring proceedings or to defend a creditor's rights, contact the law firm "Ernestas Bušmovičius ir partneriai".
Briefly describe your situation, indicate the nature of the debts, the number of creditors and the main documents you have. Once we have reviewed the information provided, we will be able to assess the possible further steps.
The bankruptcy proceedings of natural persons are governed by the Law of the Republic of Lithuania on Bankruptcy of Natural Persons, while the bankruptcy and restructuring proceedings of legal persons are governed by the Law of the Republic of Lithuania on Insolvency of Legal Persons.
Official information on insolvency proceedings and their administration is published by the Authority of Audit, Accounting, Property Valuation and Insolvency Management.
Legislation and the practice of its application may change, so each particular situation must be assessed in the light of the legal regulation in force at the time of the enquiry.
This page provides general information. It should not be regarded as individual legal advice.