Important reminder from the Supreme Court of Lithuania to natural persons in bankruptcy

Bankruptcy of natural persons has existed in Lithuania for more than a decade. It gives people in financial difficulties the chance to start their lives afresh. A lot of practice has been accumulated over this time, but according to lawyers, bankrupts often forget the basics, with very painful consequences.

Commenting on the recent case law of the Supreme Court of Lithuania, Egidijaus Langys, Managing Partner of AVOCAD, reminds that one of the essential duties of a natural person who intends to initiate bankruptcy proceedings is to inform creditors about the intention to initiate a bankruptcy proceeding of a natural person.

According to the lawyer, the fulfilment of this obligation is important in several respects:

Firstly, it should be in the natural person's own interest to inform creditors about his/her bankruptcy proceedings, as only the outstanding claims of creditors as set out in the natural person's solvency plan will be written off when the natural person's bankruptcy proceedings are closed.

Second, creditors have the right to submit to the insolvency administrator, within the time limit set by the court, their claims arising before the date of the opening of the natural person's insolvency proceedings. Creditors may exercise this right only if they have been informed of the natural person's bankruptcy proceedings.

"Therefore, a person seeking to restore his or her solvency has a duty to be proactive and to keep all creditors properly informed and to indicate the pending proceedings in respect of the claims brought by creditors," points out Egidijus Langys.

According to the lawyer, the write-off of creditors' claims upon the termination of the insolvency proceedings of a natural person is a specific statutory ground for the termination of an obligation. The obligation is extinguished when the insolvency proceedings of the natural person are closed.

"It is very important to understand that when a natural person's insolvency proceedings are closed, only the outstanding claims of creditors listed in the natural person's solvency plan are written off. In other words, only the claims of those creditors who have been informed of the bankruptcy proceedings are written off," notes Langys.

Consequently, other creditors' claims which arose before the opening of the insolvency proceedings against the natural person but were not included in the insolvency plan, or which arose after the opening of the insolvency proceedings against the natural person, do not automatically expire. It is therefore in the debtor's own interest to name all potential creditors. This is because, at a later stage, after the natural person's insolvency proceedings have been closed, creditors will be able to make claims in accordance with the law and can be enforced against the natural person after the natural person's insolvency has been closed.

The Supreme Court of Lithuania has clearly and unequivocally absolutized the debtor's duty in the context of the protection of the creditors' interests and has stated that the relevant circumstance is not whether the creditor knew or should have known of the debtor's bankruptcy proceedings, but whether the natural person seeking bankruptcy was active in such proceedings and duly fulfilled the statutory obligation of the bankruptcy court to inform the debtor of his/her property claims brought in other proceedings.

It is therefore very important to remind both natural persons themselves and their advisors that all possible creditors must be informed of the intention to initiate insolvency proceedings. If bankruptcy proceedings have already been opened, to the court, and to the court of the proceedings in other cases.

"Otherwise, the only person left to blame is himself, because not all debts that could have been written off were written off at the end of the insolvency process," stresses Egidijus Langys.

(Civil case No 3K-3-191-381/2024 of 24 October 2024)