The new law on "personal bankruptcy" - a chance for conscientious debtors and a challenge for district judges

On June 19, 2025, the National Assembly of the Republic of Bulgaria definitively adopted, on second reading, the long-discussed and anticipated "Law on Insolvency of Natural Persons", which has become known in media and public discourse as the "personal bankruptcy law".

The law was adopted as part of the "basket" of necessary legislation for receiving the next payments under the Recovery and Resilience Plan (RRP). However, in essence, it represents a serious reform of the country's civil legislation, particularly concerning the obligations of natural persons and their repayment.

The above makes it crucial for not only legal professionals but also all citizens in the country to be well-acquainted with the new law and the insolvency proceedings it outlines. This ensures that on one hand, it can be properly utilized by conscientious debtors, and on the other hand, correctly applied by legal experts.

The topic of so-called "eternal debtors" is particularly relevant in our country, where a significant percentage of the population lives below the poverty line. Almost everyone has a close friend (or at least an acquaintance) who is so deeply indebted that repaying their accumulated obligations seems completely unattainable, even by the end of their lives.

This brings to the forefront the social aspect of the new procedure and the need to balance the protection of civil commerce (and creditors in this context) with the consideration of whether a citizen would be more productive, more useful, and more economically active if some (or all) of their debts, which are very likely uncollectible, are discharged.

In essence, an analysis of the adopted law reveals that it follows the framework and structure of the provisions in the Commercial Code that regulate insolvency proceedings for merchants. Similar to those, the legislator explicitly defines the competent court, the initiation of the procedure, the appointment of a trustee, the filing of claims, and so on. However, there are also numerous differences, accounting for the fact that this law pertains to natural persons rather than commercial companies and other merchants.

At the beginning of the analysis, it should be strongly emphasized that only the debtor can initiate judicial insolvency proceedings for themselves. This is a significant distinction from commercial insolvency, where the procedure can be initiated by the merchant's counterparties, by the state, and so on. In other words, citizens can rest assured that none of their creditors (banks, collection agencies, the National Revenue Agency, or the municipality) can file such a case and declare them "bankrupt" against their will.

The logic behind the new law is that the debtor must willingly choose to go through this procedure. Their active participation in the process is not only necessary but also guarantees that their rights will be protected. Thus, not only can only the debtor initiate such a case for themselves, but only they can propose a plan for repaying their debts. If a trustee proposes a plan, the debtor must agree to it.

Such a case can only be initiated by a natural person who has not previously filed a petition for insolvency proceedings that concluded with a final court decision, as opposed to a rejection, termination, or return of the petition. In other words, if the court has already ruled substantively on such a case, the same individual cannot benefit from this opportunity again. This provision should alleviate concerns among many creditors that the new law will allow individuals to abuse insolvency proceedings and repeatedly seek to avoid paying their debts through them.

The competent court for the procedure will be the District Court at the debtor's current address. which is a good decision by the legislator, given the initial ideas for these proceedings to be conducted before the district courts. The expected amount of debts, the type of legal relationships from which they arose, as well as the social element in the procedure, presuppose that the debtor can initiate it before the district court at their current address, and not before the respective regional court, which in certain cases may be more than 100 km from their home.

The law stipulates explicit conditions that a natural person must meet in order for insolvency proceedings to be conducted for them. In other words, not every citizen who has debts will be able to take advantage of this procedure..

It was adopted that an insolvent debtor is a debtor who, for more than 12 months, has been unable to fully or partially fulfill one or more due monetary obligations with a total value exceeding 10 minimum wages. This means that with the current minimum wage of BGN 1,077, the debtor must have accumulated debts exceeding BGN 10,770 and have been unable to repay them for over a year.

The law provides for eleven specific scenarios through which the legislator attempts to "filter out" the bona fide debtors who can benefit from the procedure, distinguishing them from individuals who might be considered more culpable for their indebtedness or who have not acted in good faith in this regard. Thus, according to the new law, a debtor is considered bona fide if they incurred obligations in accordance with their financial status and income, and whose conduct does not harm the interests of their creditors. It will be precisely the district judges who, in accordance with the legal provisions, will assess whether the incurred obligations are proportionate to the individual's financial status and income. However, the legislator's logic is clear: if your salary is at the minimum wage and you took out a quick loan to go to the Seychelles, then in all likelihood, you won't be able to count on the "second chance" that the law provides.

There are explicit scenarios outlined where the debtor is considered not bona fide, and consequently, insolvency proceedings cannot be initiated for them. Thus, a debtor is not considered bona fide if they:

  • has been convicted of breach of trust, a crime against creditors, or a crime against the financial, tax, or social security system, unless they have been rehabilitated.
  • is able to work but, without justifiable reasons, has not engaged in employment or other income-generating activity in the year prior to filing the insolvency petition, regardless of how the work was assigned or performed – the question remains open as to how individuals receiving unemployment benefits, for example, will be handled, and consequently, how the court will verify whether the person has or has not engaged in "other income-generating activity."
  • .within the last three years before filing the insolvency petition, has committed a violation of the obligation to declare income or property;
  • has disposed of property of significant value without consideration within the last three years before filing the insolvency petition, or after filing the petition but before the decision to open insolvency proceedings was issued, including when they have established a real security – a mortgage or pledge – for another's obligation – This is a very important condition and legal prerequisite where the court must investigate whether the individual has made a gift of property of significant value or, for example, has mortgaged their property for another's debt. If such a scenario exists, then insolvency proceedings will be impossible for these individuals.
  • within the last three years before filing the insolvency petition, or after filing the petition but before the decision to open insolvency proceedings was issued, has undertaken an obligation under a loan agreement, a contract for the purchase of goods and services, or another onerous contract, which was not intended to satisfy their or their family members' basic living needs, and when this obligation was clearly disproportionate to their assets and income – The purpose of this scenario is to discourage the indiscriminate and irresponsible taking on of debt by individuals. However, it remains to be seen what kind of judicial practice will be formed by the district courts across the country regarding which contracts cover essential living needs and which do not, how an obligation relates to an individual's assets and income, and so on.
  • has disposed of their property where the value of what was given significantly exceeds what was received within the last three years before filing the insolvency petition, or after filing the petition but before the decision to open insolvency proceedings was issued – This scenario is well-known from commercial insolvency and generally refers to cases where a property or item is alienated not at its market value, but at a significantly lower one. In other words, it applies when the debtor has squandered their assets, receiving less for them than they could have obtained on the open market.
  • has presented false or incomplete data, or inauthentic documents, regarding their property or income to the court or the trustee, or has failed to notify them about the acquisition of property;
  • has intentionally obstructed the exercise of the court's or the trustee's powers regarding the inspection of their assets, and the preservation and replenishment of the insolvency estate;
  • has failed to fulfill obligations stipulated in this law, in an approved repayment plan, or in an out-of-court agreement with creditors, unless the failure is due to a cause for which they cannot be blamed;
  • has changed their current address or address for service during the proceedings and has failed to notify the court or the trustee within 7 days of such a change;
  • has disposed of property of significant value in favor of a related party, or has committed another act detrimental to creditors within the last two years before filing the insolvency petition, or after filing the petition but before a decision to open proceedings is issued. 

If a debtor believes they meet the conditions outlined above, they will have the right to file an explicit petition with the District Court at their current address. In this petition, they must detail the circumstances of their employment, insolvency, and assets, and request the initiation of insolvency proceedings for themselves. This petition must be accompanied by detailed information and documents that will allow the court to gain a comprehensive understanding of the individual's obligations, income, and assets, as well as the presence or absence of the prerequisites for initiating proceedings, and generally, whether the law can be applied to that particular person.

When the court determines that the conditions set forth in the law are met, it will issue a decision declaring the individual's insolvency, initiating the insolvency proceedings, permits security through the imposition of a general attachment and garnishment and, if necessary, other precautionary measures. With the decision to open insolvency proceedings, the court also all court and arbitration cases, as well as all enforcement proceedings against property included in the insolvency estate, are suspended. In addition, with this decision, the court appoints a trustee, determines the amount of funds for the individual's subsistence if their unseizable income is insufficient, and designates the debtor's special bank account through which payments can be made to and from the debtor.

With the issuance of this decision, the court opens the door for the debtor to one of the three subsequent options, discussed below. These options, when the requirements of the law are met, can lead to the discharge of some or all of their obligations and allow them to start "fresh."

Two aspects particularly stand out in the decision to open insolvency proceedings: the appointment of a trustee for the insolvent individual and the determination of funds for the individual's subsistence.

With the initiation of insolvency proceedings, the debtor will no longer be able to enter into new management and disposal transactions with their property, nor make payments without the trustee's permission. This restriction will not apply to the fulfillment of current obligations related to the debtor's vital needs.such as payments to the central and local budget, to providers of household, utility, and communication services, and necessary expenses for food, healthcare, education, and social services.

This provision is well-known from commercial insolvency, but here the legislator applies it to the insolvent natural person, whose legal capacity is practically restricted. Their economic and legal activity becomes entirely dependent on the will of the trustee, unless it concerns ordinary payments for taxes, medicines, food, and so on. If an analogy can be drawn between this situation and existing legal institutions from civil law, common ground can be found with the status of a minor acting with the consent of their parent/guardian, as well as with interdiction.

If a trustee cannot be appointed, the court has the right to appoint a state enforcement agent from the same judicial district to perform this function.

Compensation is due to the trustee upon performing certain actions during the proceedings, but the method of its formation differs from how it's determined by creditors in commercial insolvency. The trustee is entitled to a one-time fee in the amount of one minimum wage upon the first performance of each of the following actions:

  • drawing up a list of accepted claims;
  • conducting an inventory of assets and establishing the insolvency estate;
  • preparation and submission of a plan for the repayment of the debtor's obligations;
  • preparation of a distribution account.

The above type of remuneration is owed by the debtor as part of their obligations for conducting the proceedings. However, an option is provided: if the debtor is unable to pay it, a distribution account will be prepared for the trustee's remuneration, meaning the trustee will be satisfied as a creditor during the course of the procedure.


In addition, upon the monetization of the insolvency estate, the trustee is entitled to a remuneration of 2 percent of the value of the monetized property, as well as additional remuneration for their participation in court cases where the debtor is a party. These two types of more specific remuneration are due upon the receipt of proceeds from the monetized property, i.e., they are not paid by the debtor.

Regarding the means of subsistence for the individual, the newly adopted law stipulates that the debtor shall provide for their own subsistence during insolvency proceedings from their unseizable income as defined by the Civil Procedure Code. In cases where there is no such income or it is insufficient, the debtor may also use other assets up to the amount of the unseizable income. The funds to supplement the debtor's unseizable income, which must be obtained through the monetization of seizable property, will be determined by the court based on the debtor's family and financial situation, and can be modified if circumstances change.

Once the decision to open insolvency proceedings is announced, a 3-month period begins for all creditors of the individual to file their claims. The trustee prepares corresponding lists of accepted and unaccepted claims, and all interested parties can dispute them through the familiar procedure used in commercial insolvency.

Once the proceedings have reached the stage where the individual's creditors are clear and undisputed, the legislator has provided for two options.

The first option is the adoption of a repayment plan. This plan is drafted either by the debtor themselves or by the trustee with the debtor's express consent. The repayment plan can provide for a deferral or rescheduling of payments for a period of up to three years, partial or complete forgiveness of debts, and the execution of other actions and transactions with the debtor's property aimed at satisfying the insolvency creditors.

This plan is put to a vote by the meeting of creditors, who can either confirm or reject it. If the plan is accepted by the creditors, then the proceedings are terminated, and the debtor must fulfill their obligations according to the plan. If the plan is fulfilled by them as provided, then the debtor's relationships with these creditors are definitively settled.

In this scenario, the plan might stipulate that the debtor can only dispose of certain property with the prior permission of the trustee, and if the trustee isn't overseeing the plan's execution, then with the court's permission. It can also be provided that the debtor will be able to perform certain actions only with the trustee's consent, such as closing and opening accounts in banks and with other payment service providers; entering into transactions and performing actions that are not necessary to satisfy their living needs and those of their family members; and performing other actions when provided for in the plan.

The idea behind a repayment plan is straightforward and offers a quick, good opportunity for debtors and creditors to reach an agreement. However, it remains uncertain to what extent debtors (with the help of trustees) will propose plans that satisfy creditors enough for them to approve them.

The second scenario is when a repayment plan either hasn't been proposed at all, or it was proposed but not accepted by the creditors or approved by the court. In this instance, the court will issue a decision declaring the debtor insolvent, depriving them of the right to manage and dispose of their property included in the insolvency estate, and ordering the commencement of the monetization and distribution of the assets.

In this scenario, the trustee begins selling the debtor's property and subsequently makes one or more distributions of the collected amounts. Once it's undisputedly established that the debtor was acting in good faith and has no other property that the trustee can sell, the proceedings are terminated, and all claims filed against the individual are discharged, regardless of the extent to which they were satisfied.

This scenario also gives the debtor a "second chance," but it's undeniably harsher than the first option, which involves a repayment plan for up to 3 years. The repayment plan allows the debtor to negotiate with creditors and reach a payment agreement, in which case, if the terms are met, no property sale occurs. In the second scenario, the trustee can practically sell all of the debtor's seizable property. However, the good news for the debtor is that in this case, all their obligations are discharged, even if the sold property wasn't enough to satisfy all creditors.

There's also a third option, where, even when the decision to open insolvency proceedings is made, it's determined that the individual can't even cover the costs of the procedure itself. In these cases, the court declares the specific debtor insolvent and opens the insolvency proceedings, imposes a general attachment and prohibition, but the proceedings are suspended. The debtor is obligated to declare their property to the court every month and within 7 days of acquiring new property. A one-year period runs from the suspension, during which the proceedings can be resumed, if the debtor certifies that they possess seizable property sufficient to cover the initial costs. A request for resumption can also be made by a creditor who deposits the necessary amount for prepayment of the initial costs.

If resumption isn't requested within this one-year period, the court will issue a decision declaring the debtor insolvent and terminating the proceedings. When the debtor has no assets, a three-year period begins to run from the date the decision declaring the debtor insolvent enters into force. Only after its expiration are their obligations to all creditors, included in their petition for the initiation of proceedings, discharged.

This third option likely carries the greatest risks for creditors, as it stipulates the discharge of all of the individual's debts without any payment from them and without the sale of any of their seizable property. While this is expected and justified in cases of complete lack of assets, it remains an open question whether the court will be able to objectively distinguish these individuals from others who might attempt to conceal existing assets to obtain a discharge of their obligations to all creditors through this procedure. It's important to recall the strict requirements for individuals wishing to initiate the procedure, as well as the fact that the debtor will have to repeatedly declare the absence of property to the court. It remains to be seen whether certain individuals who do not meet the requirements and the entire purpose of the proceedings will manage to benefit from this unique legal indulgence, or if the law will prove strict enough in its demands to prevent this.

It's important to note that under the second and third options, the following obligations are not discharged:

  • Obligations secured by a mortgage or pledge, to the extent that the security hasn't been used to satisfy the creditor;
  • For fines;
  • For tortious acts (unlawful harm);
  • For statutory maintenance/alimony;
  • Those arising after the opening of insolvency proceedings;
  • Obligations of guarantors and parties jointly liable with the debtor
  • Claims of creditors unsatisfied in the insolvency proceedings, secured by a pledge or mortgage from third parties.

So, if in the second scenario all of the debtor's seizable property is sold, but there are still obligations arising from the above-mentioned exceptions, those will not be discharged. The same applies to the third scenario – even if all conditions for the discharge of the debtor's obligations are met, those arising from the above-mentioned exceptions will not be discharged.

When examining these exceptions, a concerning scenario emerges: the debtor's obligation may be discharged through their insolvency proceedings, but the obligation of a third party—who secured the same debt with a mortgage on their own property, or acted as a guarantor—is not. For example, if you decided to help a relative get a loan by mortgaging your property or, even more innocently, agreed to be a guarantor for the loan, there's a real possibility that your relative could legally "get rid of" the debt, while you cannot. We can only hope this is a legislative oversight that will be corrected soon, as this wording doesn't align with the general principles of contract law and the characteristics of the legal constructs in question (guarantee, joint and several liability, securing another's debt).

It should be noted that the law won't apply to individuals who engage in commercial activities as sole traders, or who practice an economic activity, craft, or liberal profession as entrepreneurs, when they have debts arising from their exercised activity, craft, or profession.

Additionally, the initial personal insolvency cases won't begin earlier than 9 months after the law's promulgation. During this period, the Minister of Justice must organize the creation of a new module for individual insolvency proceedings within the Insolvency Register and issue the relevant and necessary subordinate legislation.

In conclusion, the newly enacted law represents a significant step forward in the legal regulation of individual debts, particularly concerning their fate when a person is insolvent. The legislator has strived to introduce high requirements for these individuals to ensure the procedure isn't abused. The burden of correctly applying the law and achieving its objectives falls upon all 113 district courts in the country. They will have to assess each individual case to determine whether the person is a good-faith insolvent debtor in the sense of the law, or someone who has not been in good faith and, therefore, cannot benefit from it.

The law certainly has its loopholes, which will become apparent once court cases under it begin. At that point, the legislator's role will be crucial. They'll be expected to make the necessary corrections and additions to ensure the law functions according to its stated goals, rather than remaining just another task checked off the list for the billions from the Recovery and Resilience Plan.

Author: Simeon Hinkov, Attorney-at-law