A Real Solution for Foreign-Currency Loan Borrowers Instead of “Walking Away”: Foreign Personal Insolvency

The first step in escaping the Hungarian debt trap is to move outside Hungarian jurisdiction.
According to an article published today on Index.hu, György Schadl, President of the Hungarian Chamber of Judicial Officers, stated to Magyar Idők that the introduction of the so-called “walk-away” mechanism, already used overseas, could solve the problems of many foreign-currency loan borrowers. Under this approach, if all of the debtor’s assets are sold, the debtor would — subject to certain cumulative conditions — be released from the remaining debt.

It is indeed a real problem in Hungary that, even after the auction of all movable and immovable assets, foreign-currency loan victims — or other debtors — may still be left with debts amounting to tens of millions of forints, trapping them in debt for the rest of their lives. Hungarian enforcement law often effectively forces debtors under enforcement into homelessness. Under Hungarian legislation, all of a debtor’s income may in certain cases be garnished down to the statutory minimum old-age pension. This means that, according to the legislature, a Hungarian person may be expected to live on HUF 28,500 per month. The existing Hungarian “personal insolvency” regime provides no meaningful assistance to those caught in a debt spiral.

Hungarian law therefore leaves debtors with such ridiculously low amounts that the possibility of starting over is practically non-existent. In addition to raising serious constitutional concerns, this merely preserves and deepens the debt trap. Instead of trying to reintegrate debtors into the market, it ultimately removes them from productive economic activity altogether. As a result, not only does the creditor fail to recover even a fraction of the amount owed, but the debtor is also personally and permanently ruined.

This situation, however, can already be changed under the existing regulatory framework, without the debtor being dependent on the favour of the Hungarian legislature.

The European Union has adopted regulations on insolvency proceedings that are binding on Hungary as well. Hungarian citizen debtors therefore also have the possibility of making use of insolvency protection options under foreign law. This means that, unlike under Hungarian regulation:

• Hungarian enforcement proceedings may be terminated immediately;
• the proceedings may be concentrated before a single foreign insolvency administrator who is solution-oriented;
• complete debt discharge may be possible even with 0% repayment;
• even during enforcement or insolvency proceedings, income amounting to several thousand euros may be exempt from enforcement;
• all debts may be definitively discharged within a matter of months;
• the effect of the debt discharge also applies in Hungary.

After successfully completing foreign personal insolvency proceedings, all debts in Hungary may therefore also be definitively discharged.

It is therefore clear that a solution for breaking out of the debt trap already exists.