A bankrupt person is known as a debtor or a bankrupt debtor and the person who has something to claim from the debtor is known as a creditor. During a bankruptcy, the debtor’s property is sold and the money distributed among the creditors according to a system. This is done as long as there is sufficient money and the costs of bankruptcy have been paid.

How is a bankruptcy carried out?

The district court may decide that a monitoring procedure shall take place. In this case, the creditors must notify (guard) their claims to the district court, which they otherwise do not need to do. If the district court decides on a guarding procedure, it must be published in, for example, a newspaper. The announcement also states the latest time by which the investigation should be completed. All creditors known to the trustee will be informed of the matter. The debts that are not paid in bankruptcy remain. However, this is only of practical importance when private individuals are bankrupt. Legal persons are usually resolved when the bankruptcy is terminated.

In connection with the bankruptcy decision, the district court appoints a bankruptcy administrator. The trustee shall, inter alia, take the following measures:

  • Take care of the debtor’s property (bankruptcy estate)
  • Make a list of the debtor’s assets and liabilities (building list)
  • Establish a so-called trustee report in which the trustee will, inter alia, address the causes of bankruptcy
  • Sell the assets
  • Pay out the income in the estate of the creditors

What are your rights and obligations as a debtor?

You are entitled to retain certain property for your own personal use, such as clothes and furniture, and items of high personal value, such as wedding rings, medals and athletics prizes. If the debtor cannot support him- or herself and his or her family, the bankruptcy estate shall pay the necessary maintenance. This usually applies within a month of the bankruptcy decision itself. You also have the right to retain earned income that was outstanding at the time of the bankruptcy decision or that accrues to you thereafter. The exception to this is the portion of income that clearly exceeds what is required for the debtor and his or her family’s maintenance or other maintenance obligations that you may have as a debtor.

The trustee decides which property and how much money a debtor may retain. If the debtor is not satisfied, he or she may take the matter to the supervisory authority. When the debtor goes to see the trustee or the district court, he or she is entitled to compensation for travel and subsistence, but only if there is a need for it. The compensation is determined by the court and paid by the bankruptcy estate.

A debtor is required to:

  • Be accessible to the trustee and to tell the trustee where he or she is staying, if he or she changes residence
  • Submit the relevant information requested for the bankruptcy investigation
  • Be present when the administrator prepares the building record
  • Go to the district court and agree that the building record is correct
  • Obtain permission from the district court to travel abroad before the oath is taken

If the debtor fails to fulfil his or her obligations or if there is a risk that these will not be met, the district court may take several actions that restrict the debtor’s freedom. It is therefore very important for him or her to be aware of his or her obligations. The district court’s decision may include one or more of the following:

  • The debtor must leave his or her passport
  • Passports may not be issued to the debtor
  • The ban on travelling abroad will apply even after the oath has been completed
  • The debtor must not leave his or her place of residence
  • The police authority shall collect the debtor
  • The debtor shall be detained

Bankruptcy – Help in insolvencies and financial crisis

Important restrictions on the debtor’s economic freedom of action

Once a bankruptcy decision has been taken, the debtor will not be able to dispose of property belonging to the bankruptcy estate until the bankruptcy has been terminated. The debtor must not sell or give away property belonging to the estate, nor shall he or she pay any debts with money taken from the estate. In addition to this, the debtor may not enter into any agreements that may be invoked against the bankruptcy estate – the debtor may not be liable for debt or any other economic agreement. Such measures will be invalid or punishable. The debtor must also not be professionally employed, except for agriculture and forestry. Once the bankruptcy has been completed, the debtor regains his or her economic freedom.

Special rules for legal entities

Legal entities are companies, associations and similar associations, including estates. When a legal person has become bankrupt, much of what has been said above about the debtor also applies to the legal person’s deputy. However, the bankruptcy of the legal person does not constitute a limitation on the deputy’s own economic freedom of action.

The following persons are usually deputies during a bankruptcy:

  • Limited companies (AB) – board members and the managing director
  • Partnerships – the partners
  • Commitment company – the complementary, i.e. the non-contracting partner
  • Association or foundation – board members
  • Estate – the co-owners of the estate

Of the rights mentioned above the only thing a deputy is entitled to is compensation for appearing at court. More favourable rules apply for mortgage owners. Each deputy has all the obligations stated for debtors above. However, if there are several deputies, the estate inventory is not required by those persons whose managerial managers consider it irrelevant to the employer, though at least one deputy must usually complete an oath. A person who has been informed that he or she does not need to give an oath will be unable to travel abroad.


Termination of the bankruptcy

A bankruptcy is terminated either when the district court determines how dividends will be made in the bankruptcy or there is nothing available, when the district court’s decision to write off the bankruptcy will take effect. This will happen three weeks after the date of devaluation if there is no appeal.

Appeal against the trustee’s final report

Upon completion of the bankruptcy, the trustee submits a final report to the supervisory authority and a copy to the district court. The final report is then available to anyone who wants to share it. An appeal against this report is called ‘blame’.

The final report may be appealed against by both the supervisory authority and the debtor. A creditor whose right may be dependent on the account is also entitled to appeal. Anyone who wishes to appeal against the final report must file a lawsuit and then bring an action against the trustee of the district court which has handled the bankruptcy.

The action to appeal must be taken within three months. If a payment has been made, indicate the last day of the appeal in the announcement of the dividend proposal and the final report that has been published in the newspapers. If the bankruptcy has been written off, the period is calculated from the date of receipt of the copy of the final accounts in the district court.

If the debtor or a creditor wants to bring an action against the administrator for damages, he or she usually has to do so by appealing against the final report within the three-month period.


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