Debt arrangements for a private person
Your company is eligible for a debt arrangement for a private person if you operate as a private entrepreneur. In the debt arrangement, a payment programme is prepared for the debts that you have accumulated in your company and in your private household. You can submit an application for a debt arrangement through the financial and debt counselling provided by the legal aid office. You must observe the payment programme prepared for your company until the end of the arrangement.
A debt arrangement for a private person is intended for private individuals and private entrepreneurs that cannot manage their debts by other means. In the arrangement, a payment programme is prepared for all debts that you have accumulated as a private entrepreneur and in your private household.
In the debt arrangement process, some of your property is sold to pay your debts if you do not need it for living or for your business operations. The parties that have guaranteed your debts and provided collateral may also be obliged to make payments for their part.
The process of applying for debt arrangements may take up to a year. The actual debt arrangement process often lasts between three and five years. During this time, you will make repayments on your debt on a monthly basis. The size of the monthly instalment depends on your income and the expenses that have been accepted in the debt arrangement.
It is usually specified that you are not allowed to take new debts during the arrangements. If your income increases, you will have to make larger repayments on a yearly basis.
Note that when applying for a debt arrangement, you company will get a payment default entry. It will be removed when the arrangements are ended. An entry of the debt arrangements is also added to your company details in the trade register.
Your company is only eligible for a debt arrangement for a private person if your operate as a private trader. You must be a private trader permanently residing in Finland and be unable to pay back your debts within a reasonable period of time.
Your business activities must be in small scale and be mainly based on your own work input. Your operations must also be profitable. Rehabilitating the business may not require corporate reorganisation. For this reason, you should start improving the profitability of your company before the debt arrangement process starts.
Your company must generate enough income so that during the debt arrangement process, you can pay the expenses and other invoices arising from your business on time. Your business may not be bankrupt either. The debt arrangement must generate more funds for your creditors than what they would get if the company’s assets were sold.
Note that a debt arrangement covering your business debts also covers your personal debts. However, the debts are separated on the basis of whether they have resulted from your business activities or in your private life.
A limited liability company, a general partnership, a limited partnership or a cooperative is not eligible for a debt arrangement for a private person. Debts resulting from negligence, irresponsibility or crime may also prevent a private trader from having its debts arranged.
Your business cannot have its debts arranged if you have failed to meet your statutory obligations in your previous or current business operations. Such obligations include the payment of taxes and statutory insurance contributions. The only exception is that the failure to make the payments has been caused by insolvency.
A debt arrangement is also out of the question if you are subject to a business prohibition, you have been in a debt arrangement before or you give incorrect information to the authorities or your creditors. Speculation or transferring assets beyond the reach of creditors also prevent a debt arrangement.
However, even if any of these criteria applies to you, you may still have your debts arranged as a private person if you are seriously ill or your debts are statute-barred.
If you want to have your business debts arranged in the debt arrangement for a private person call the Talousapu service of Enterprise Finland. You will get a preliminary estimate of whether you can apply for the arrangement. If you get a positive reply, make an appointment with the financial and debt counselling in your regions Legal Aid Office.
Get the documents required for the debt arrangement application and take them to the Legal Aid Office. Note that a large number of documents is required and obtaining them is time-consuming.
After reviewing the documents, the financial and debt counsellor decides whether you can have your business debts arranged. If the decision is favourable, you should get an opinion of the financial situation of your business from a reliable expert, such as your auditor or a consult.
Make a second appointment with the financial and debt counsellor who assists you with the preparation of the debt arrangement application. Submit the application and the appendices to it to a court.
If your application is approved, the court will appoint an administrator who will prepare a proposal for a debt repayment programme. After all parties concerned have given an opinion of the proposal the court will approve the payment programme. You can now start repaying your debts in accordance with the programme.
You can start a new business even if you are in a debt arrangement for a private person. However, it is not a straightforward process.
If you need new debt to start a new business, you must prove that you need the debt for your livelihood. This is because, in principle, you should not accumulate new debt during the debt arrangement. You must also ensure that you can repay the new debt (plus the interest on it) on time despite the debt arrangement.
Note that if your income increases as a result of the new business, you must observe the additional payment obligation under the debt arrangement. In that case, you must make larger debt repayments as part of the debt arrangement. This may make it more difficult to manage the debts that you have taken for the new business.
During the debt arrangement, your income may increase from what it was when the payment programme was prepared. In that case, you must set aside some of the additional income because you must pay that to your creditors retroactively once a year.
Every year, your income will be compared with the income recorded in the payment programme. If your income increases by at least EUR 2,000 during the calendar year, you should comply with the duty to make supplementary payments.
You should set aside half of the sum exceeding this total for your creditors. For example, if your income increases by about EUR 4,000 during the year, you should set aside about EUR 1,000 for your creditors. You should, however, check the threshold as it can vary each year.
From the part exceeding the amount, you can deduct the work-related travel expenses and other income-generating expenses that have not been taken into account in the payment programme.
If you need advice in matters concerning the additional payment obligation, contact the financial and debt counselling of Legal Aid Office. It helps you to calculate whether you have to make additional payments and how much additional funds you have to pay to your creditors.